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Residential Investment 2012

For the most part, property investing is a mid-to-long term play. Stuff which happens in the short term is much less important. Average property price changes this month or last month do not matter that much unless you are actually selling.

Second, the market for property is really about the rule of law and the regulations. None of us will own and actually consume the dirt. We will all be dead before the dirt disappears. What we are really investing in, what we are really buying or selling is a bundle of rights. The right to occupy, the right to build and improve, the right to farm or mine, plus the right to do any number of things related to a piece of real property. The reason for pointing this out is that a change in the law can have both a short term and a long term impact on investment prospects for the whole sector.

Beyond the law, the ability to raise finance is critical. As the largest asset class in the UK, the residential sector dwarfs all the alternatives. Bigger than commercial property, bigger than the stock market and bigger than the bond market to name a few alternative asset classes that commonly come to mind when discussing investments.

In 2012, the UK Government plans to introduce changes that will have a direct impact to the legal framework for how property is owned and how property can be financed. This could be a dramatic change or it could be lost in the noise this year. Over the longer term, I personally think the impact will be large for anyone who wants to build a portfolio larger than the present BTL loan limits. For many buy to let lenders, individual investors are now limited to three properties before they need to switch to commercial financing terms. Given that, the proposed changes by government could directly impact almost every reader of Property Investor News.

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