Real estate investing; As rents and prices rise, ownership restrictions and expropriation risks loom larger

As housing costs spiral higher, Soviet-style policies loom more likely

What Is Expropriation?

Expropriation is the act of a government taking privately owned property against the wishes of the owners, ostensibly to be used for the benefit of the overall public.

Governments may begin to control rents, restrict rental ownership, and expropriate from property owners.

When contemplating the merits of a particular investment class (e.g. stocks, metals, commodities, bonds, real estate), I often recommend that we take a “blank slate” approach, and determine the likelihood of various outcomes. If the outcomes are, on average, weighted favorably, I recommend investing. If the outcomes are slanted negatively, I usually stay away. This approach has served me well over the years and I relay my analysis to you.

With respect to real estate investing, the circumstances and conditions have been heavily weighted in its favor all decade. We have enumerated all these aspects in the past. But as this monetary system and new world order agenda move forward, it is becoming clearly evident that governments have been imposing more unilateral and capricious power over their populations. Thus, I see potential clouds on the horizon for real estate investors around the globe as housing costs continue climbing.

Specifically, I am predicting that we may eventually see a cap on rental ownership and more legislation to control rent growth. If the situations get more dire, we may begin to see a push for forced sales or outright expropriation.

A proposal to force Berlin’s largest residential landlords to hand over their properties in return for compensation wouldn’t violate German law, according to a professor at the University of Administrative Sciences.

“What this initiative wants to achieve would be feasible under the constitution and under federal law,” according to Joachim Wieland, who published his legal opinion Wednesday. The study was sponsored by the Left party, one of three ruling parties in the German capital’s administration.

A grassroots initiative to force the government to buy out large Berlin property owners would affect companies including Deutsche Wohnen SE, the city’s largest residential landlord, and Vonovia SE. Expropriate Deutsche Wohnen and Co., the organization that’s pushing for a referendum on the issue, needs to collect 170,000 signatures by February as a first step in the process.

If Berlin carried out the proposal to buy out all companies that own 3,000 apartments or more, it would need to pay compensation that balanced the interests of society as a whole with those of the landlord, Wieland said. “There’s absolutely no requirement to base this on market prices,” he said.

The Left party — which has roots in Germany’s former Communist Party — and its coalition partners are trying to introduce other measures to clamp down on landlords after a sharp increase in living costs led to mass demonstrations. Katrin Lompscher, Berlin’s housing senator and a Left party member, has proposed a five-year rent freeze and a plan to cap rents at levels that relate to the age of individual properties.

Berlin Landlord Expropriation Proposal Backed by Legal Expert – Bloomberg, September 11th

Many folk find cheap housing appealing and they don’t care who pays, as long as it’s not them.

Of course, in heavily socialized nations like Germany, the push to expropriate may be more advanced that say, Canada. But the conditions are being set as we move forward with QE and the like. I have to contemplate these scenarios, since these are legitimate exogenous threats to those who rely on  property management and rental investing for income.

It’s just common sense to assume that we will definitely see more of a concerted effort to socialize housing as time goes on. It will pick up first in the European Union nations and less in the former Commonwealth, but the threat is increasing everywhere. In the United States, the rules regarding eminent domain, even in the name of social good are clear. But if the nation-states threaten to clamp down on real estate investing and land-lording, prices could get pummeled. Cap rates could skyrocket as many may drop out, because of the uncertainty.

I own a number of properties in Maryland, and I see this outcome as much more likely than in Virginia. Already, Maryland requires rental licenses and other restrictions, as well as mandatory rental inspections. It doesn’t take a leap of faith to see where the potential may end up.

I am just sending this warning out to the many real estate investors who read my articles.