In recent years, many economists have recognized that the lack of effective real estate laws can be a significant barrier to investment in many developing countries. In most societies, rich or poor, a significant fraction of the total wealth is in the form of land and buildings. In most advanced economies, the main source of capital used by individuals and small companies to purchase and improve land and buildings is mortgages -- bank loans for which the real property itself constitutes collateral. Banks are willing to make such loans at favorable rates in large part because if the borrower does not make payments the lender can foreclose, that is, file a court action that lets them take the property and sell it to get their money back. But in many developing countries there is no effective means by which a lender could foreclose, so the mortgage loan industry as such either does not exist at all or is only available to members of privileged social classes.
1. Buying and selling real estate
There are differences between buying and selling real estate and dealing with things such as stocks, bonds, and mutual funds. For example Most investments can be bought or sold within minutes at the market price. Buying or selling real estate takes months. That difference introduces interesting wrinkles in timing when to buy or sell. Like other investments, selling at a high point, with the intention of buying back in at a lower price, is one way to make a profit. The difference in the time required is intriguing.
2. Stocks
Stock selling can be easy. When the stock continues to rise, there are often others that have declined but can now be predicted to rise again. The real estate market rarely offers those kinds of opportunities.
3. The other difference
The other difference is that companies differ but most stocks are alike. Real property is always unique.
4. Lower prices
If selling a person needs to get a new home, buy back in at a lower price or wait for a new opportunity. The costs of doing things can be very high.
