Real Estate Markets From an Economist’s Viewpoint
The real estate market develops from the need for housing.
Properties are built, bought and sold in a cycle which can be at different times stagnant or vibrant; transparent or murky; beneficial or shoddy and dangerous.
The key to the existence and flourishing of the free market is a society in which the rights and titles of private property are respected, defended, and kept secure.
Private property thrives in open, ethical markets. Free markets do not mean lack of controls. When there is reason or ethics to contain greed, more members of a society benefit.
1. Private property is threatened in a:
black market, underground economy, or shadow economy in which some form of noncompliant behavior is in conflict with an institutional set of rules. If a rule defines certain goods and services are prohibited by law, the production and selling of these good constitutes a black-market trade, and the transaction itself is illegal.
Parties engaging in the production or distribution of prohibited goods and services are members of the illegal economy.
Examples include the drug trade, prostitution, illegal currency transactions (real estate is a popular way to convert dirty money into clean)
2. Private property is threatened by:
Violations of the tax code involving income tax evasion creates a membership in the unreported economy. Because tax evasion or participation in a black-market activity is illegal, participants will attempt to hide their behavior from the government or regulatory authority. So, cash usage is the preferred medium of exchange in illegal transactions since cash usage does not leave a footprint.
Common motives for operating in black markets are to trade contraband, avoid taxes and regulations, or avoid price controls or rationing.
With-holding or misreporting sales prices in a real estate market destroys a fair market and transparency. Buyers are as likely to pay too much as too little of the true value of the property. Most often, the case is to pay too much.
3. Private property is threatened by:
Monopolies as a market situation where one producer or a group controls the supply of a good or service, and the entry of new producers is prevented or highly restricted.
Monopolist firms keep the price high and restrict the output, and show little or no responsiveness to the needs of their customers.
In the case of a monopoly in a real estate market, collusion between different agencies can cause the buyers to over pay for their property and or force sellers to pay a high sales commission not warranted by the amount of work and expense the listing agent incurs.
4. Private property can be defended and survive when:
It is understood there is an exchange of title(s). When buying a house, the intricate process of deeds, notarized contracts, agents, attorneys, mortgage brokers, etc. are the exchanges for title to the property.
5. Private property is possible when there are ethics:
Local conditions of markets may be different, but global markets, ethics and social responsibility principles should be applicable to all.
Murray N. Rothbard, economist:
“Economics has revealed a great truth about the natural law of human interaction: that not only is production essential to man’s prosperity and survival, but so also is exchange.”
This article is based upon writings of Murray Rothbard, legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review. If you have any other questions, contact me through my website.