First, real estate enables economic activity, that is providing the infrastructure for businesses by offering the space for businesses to operate. It effectively provides the business infrastructure without which an advanced economy could not operate. Furthermore, high-quality, modern and innovative buildings contribute to maintaining the Country’s reputation as an international trade hub and attract skills and capital from the rest of the world, creating further opportunities.
Second, real estate is a source of employment in all sorts of areas; not only for architects, builders and engineers, but also for legal and financial advisors, surveyors, facilities managers and all those that provide for the construction industry.
Third, real estate plays a vital role in the provision of infrastructure. It is easy to see that infrastructure creates the conditions for property development, but it should not be forgotten that this is a two-way relationship. Tube extensions, schools, hospitals, and so on are all examples of projects whose viability can be highly dependent on associated real estate development.
Finally, real estate represents an attractive asset class for institutional investors such as pension funds, insurance companies and sovereign wealth funds. Not only does this maximise investment opportunities and returns for pensioners and savers from around the world, it also makes large urban regeneration projects possible, such as at Battersea Power Station and Greenwich Peninsula.
Overseas investors are attracted to the country by its political stability, robust legal system, high-quality assets offering good long-term return opportunities, and relatively benign tax environment.
It is important that governments do not take these investors for granted. Frequent and significant changes to the tax and regulatory environment might affect the profitability of such investments and send investors the wrong message, driving them away. Instead, the government should focus on how it can help real estate to flourish and allow the benefits that the industry provides to the economy to be felt as widely as possible.
Real estate can probably not claim to be the magic wand of economic growth, but it is certainly a lever for growth that could be pulled harder.
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