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131: Shortages in resources - the market supply and demand


05-05-2007

PropertyInvesting.net team

 

Property investing is to a large extent about trying to identify imbalances in market supply and demand. Investors want to see projected high demand and very low supply.

 

It is true of all businesses. Take water for instance – a booming global population, increasing water usage in industry, global warming, forests being cut down and increasing residential and agricultural water usage all point in one direction – massive increases in demand as supply reduces. Surely water prices will have to shoot up. May be this is a good business to get into? Another example is forests. Increasing deforestation, lack of land, increasing population, use of wood for building and fuel– increasing demand for wood and reduced supply. May be another good business to get into. In property – if the area is economically booming, there is greater pressure on land and therefore a supply shortage, then house price will rise.

 

So if you put all the three together – water, forest and property – one could say buying a forest with river rights close to an expanding population centre in a stable country with expanding economy looks like a winner. You could put hydro-electric turbines in the river and sell renewable electricity, sell off parcels of land to developers and use inheritance and other tax breaks on forests to increase returns. You could sell and re-plant wood – you might sell carbon credits to business – offset their CO2 emissions being planting them trees. Land, forestry and water are natural resources – and property is built on this depleting resource. The reason for mentioning this to our website visitors is to help you think more broadly about trends that will drive returns in the future. Try and create multiple streams of income from one asset. It’s any wander why film stars have been buying large swathes of Patagonia in Argentina – low prices, large natural resources and they can plant trees and make lots of money. All tax free.

  

If you extend a step further, let say you buy a large tract of land with mining (oil, gas, copper etc) rights, water rights, power generation rights, forestry rights and property development rights – this would be ideal in an investment environment of expanding global population and dwindling natural resources. On a smaller scale this could be a house with a large garden and river frontage with neighbouring woodland. You might convert this property into a leisure centre, training centre or see its value appreciate because it is near a major city where such properties are very rare (e.g. home with river frontage at Henley-on-Thames near London).

 

So linking back to the above advice on regeneration area – rather than buying twenty terraces in eastern Hull, its better to buy a detached house with large garden and river frontage in west London. It’s all to do with supply and demand.

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