This research paper determines the problems facing the real estate sector in the World. This research paper then discusses how the established problems negatively impacts on the real estate sector. Finally, this research paper outlines explicit remedies and solutions to the identified problems.
Real estate refers to investments relating to land and improvements thereon in the form of other immovable property attached to it like housing, buildings, crops, water and minerals and goes with the rights, interests and privileges that go with ownership of land. It encompasses aspects of real estates investing, real estate marketing, leasing, real property management, real estates appraisal and real estate brokerage and agency.
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T he problem of continuing recession in real estates markets adversely affects the growth of the real estate sector. Over the past years there has been economic contractionary trends characterized by low employment, low household income and investment spending. This has led to reduced investments in the real estate sector. To solve this problem in the real estate sector the government(s) should make sound policy adjustments. For example, the Federal Reserve Bank can adopt expansionary monetary policies like increasing the money supply. When money supply is increased, entities can borrow enough funds from commercials banks and invest in the real estate sector. There exist unfavorable legislations by the Federal Government’s Housing regulations that have hampered the growth of the real estate sector.
Blackwell publishing company (2006) notes that, homestead laws are laws that give homeowners less protection against lien and foreclosure. For example, In California the homestead law provides protection against judgment lien only. It does not apply to deeds of trust, mortgages, mechanics’ liens or liens for child support and spouse mentainance ( 68).Non-financial encumbrance like easements and private restrictions affect the physical use or condition of the property. Thus, the Owner of a property may find the use of his property limited by a right or interest held by someone else.
Blackwell publishing (2006) asserts that although a property owner has several rights and freedoms concerning the use of his land. Those rights are limited by some powers of the federal state and local government. Public restriction on land like land controls limit the rate at which real estate develops. Government controls come in the form of comprehensive plans, zoning ordinances, building codes, subdivision regulations and environmental laws. Although these laws are geared towards protection of public safety, public health, public morals, and general welfare are also essential. This restriction on public land can be solved by amendments, appeals and exceptions in the form of variances, reassigning un-conforming uses, rezoning and conditional uses. These changes can be requested by an individual property owner, city or county government or the relevant commission.
There several stratigient real estate legal formalities those players in the real estate ought to adhere to in execution of their transactions. The process followed in the transfer of property law is cumbersome owing to long sale of real property contract law procedures. There is also the relevant authorities’ approval of the transfer of property in real property in the form of issue of valid certification, which takes time. The transfer of property in real estate property becomes even harder when transactions involve a syndicate i.e. more than one party as in the case of a partnership,corporations,limited liability company, joint venture or trust. These stratigient formalities ensure delayed real estate developments and upsurge of expenses due to disputes, which derails the anticipated boom in the real estate sector.
Moreover, there are huge fees charged to players in the real estate in the form of advance fees, fines and damages for breach of contract. This problem of stratigient legal formalities can be corrected by appropriate legislation to provide for fixing of time deadlines for the processing of transfer of property in real estate property deals. This can be done by the affected parties, like an individual, raising complaints and petitions in courts of law, to address their problems.
There is also the problem of real estate financing and loan acquisition difficulties. Potential investors and buyers in the real estate cannot readily access debt financing from the banks. This is due to the increased formalities imposed by the banks and escalated loan repayment finance charge of capital. Potential investors in the real estate do not have highly valued security required by the banks so that they obtain adequate funds to venture in worthwhile investment projects in the real estate. The problem of real estate financing and loan acquisition can be solved by the Federal Reserve Bank. The affected stakeholders should raise complains and petitions to the relevant authorities.The relevant authorities or political representatives can persuade the federal government to lend more to commercial banks.The potential investors in the real estate can then borrow readily available funds from the commercial banks. The relevant authorities or political representatives can persuade the Federal Reserve Bank to cut down n the interest rates on borrowed funds to encourage borrowing.
There exists the problem of fraudulent dealers in the real estate market who defy the provisions of the real estate Law and the subdivided lands law as amended and in effect from the 1st of January 2012 from the business and professions code.Individuals, brokers, agents, joint ventures and the commissioner of land may be involved in illegal activities whose aim is to defraud potential investors and buyers in the real estate.
The problem of existence of fraudulent dealers in the real estate market can be solved by the prosecution of those who are involved in fraudulent activities or are the perpetrators of the said vice. The commissioner of land should ensure the provisions contained in the real estate law and the subdivided lands law as amended and in effect from the 1st of January 2012 from the business and professions code should be followed to the letter. Employees in the real estate sector should be periodically vetted to establish officers who are involved in fraudulent activities and such officers can be fired upon conviction.
There is the problem of Land use. Owners of land have pledged their pieces of land as security for debts, others have leased their pieces of land and others do not adequately utilize their pieces of land due to lack of capital. When land is leased and pledged it means the arises encumbrance and lien to land. Encumbrance refers to non-possessory rights on real property held by someone else other than the owner. Lien refers to surrender of land for security for specific acts and foreclosure. Land, which is under encumbrance and lien, is underdeveloped unless development is expressly agreed upon by the owner and the encumbrance holder or lien holder. Underdeveloped land means decreased activities in the real estate sector. This problem can be solved by increased incentives to private landowners by the government to improve their land.
Another problem is the problem of stunted employment rate. Low unemployment rate means low income in households, hence poor living standards in terms of poor housing and domestic consumption. To address this problem the government should direct funds towards real housing development and employment creation.
There exists the problem of unfavorable federal government policies, which hamper growth in the real estate sector. A policy like reduced government incentive to the real estate sector to safeguard the environment or public health adversely affects growth in the real estate. A government policy that provides for increased taxation of firms in the real estate sector makes potential investors in the real estate shun investment in the real estate sector due to low net returns involved upon provision for tax deductions. Real estate is a pillar of the economy and the government should overhaul it policies to create an environment that favors growth of the real estate sector.
There is increased entry of distressed property in the real estate market. The distressed property enters the real estate market due to reasons like poor constructions procedures and unprofessionalism for the case of housing. Distressed property generates reduced cash inflows compared ton undistressed property. Risk adverse investors will opt not to invest in distressed property. This causes relatively reduced transactions in the real estate sector hence hampering growth in the real estate sector. This problem of entry of distressed property in the real estate market can be solved by increased regular appraisals and inspections of real estate property by the relevant authorities before it is allowed entry in the real estate market.
Another problem that negatively affects the real estate is the existence of a budget deficit in budget; say the federal government’s budget. When there exists a budget deficit it means that the government has two options to plug the gap. It can either charge more taxes to cover the budget deficit or create a better economy and collect more revenues to cover the budget deficit as the fiscal year progresses Dr. Housing Bubble (2012) provides .Higher taxes means that households have less to spend on housing. Reduced spending on housing reflects a real estate market with few activities and low sales volume.
The problem of the budget deficit can be reduced by allocating more funds public investment such as research and investment in human capital while spending much less on programs such as security and Medicare. The tax policy should be overhauled and updated to fit a more modern economy. The tax base should be reviewed, tax rates should be revised when possible and the mobility of capital must be taken into account. Consumption taxes can be increased to promote savings, for example, a carbon tax could help result to improved energy policies and increased government revenue. Increased investment means increased aggregate supply hence increased total output and consequential increased ventures in real estates.
The psychology of the buyer is another problem that has caused stunted growth of the real estate sector. Potential buyers who wish to acquire real property have the fear that they may engage a fraudulent agency or barrister who would squander their funds. Potential buyers of real estate property and who qualify to be awarded a loan fear that they may default to repay the loan advanced to them considering increased default rates in the past. Thus, potential real estate investors shun from acquiring a mortgage. Moreover, given current escalated prices in niche real estate markets make many potential real estate buyers may opt to rent. A combination of these fears coupled with potential real estate buyer’s own negative perceptions about the dealings in the real estate sector may discourage investment in the real estate sector.
The problem of the negative impact of the potential real estate buyer’s psychology on the real estate boom can be solved by educating on formalities involved in mortgage transactions, the law of agency and the law of contract.
In conclusion, real estate is an important pillar of any economy and measures to promote its development should be instituted by a state that minds the living standards of its citizen.