Van de Weyer, Sylvain; (2007) Overseas Property: An Answer to the Pensions Crisis. Masters thesis , UCL (University College London).

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Abstract

Two centuries ago the founding father of rigorous economic analysis, David Ricardo, argued that land is unique type of asset, subject to forces quite different from those determining other prices; and he sought to show that these forces make land a uniquely good long-term investment. In life, he even practised what he preached, using the profits that he had accumulated as a London banker to buy a large estate in Norfolk. In modern economic, Ricardo has often been deride for his theory. The theory of ‘efficient markets’ tells them that the underlying returns on all kinds of assets, adjusted for risk, will tend to equate; so land is just one asset amongst many. But most modern English men and women, inexpert in economics, seem to be closet Ricardians in their behaviour, believing that money tied up in ‘bricks and mortar’ is especially secure and profitable. And they too practise what they preach, regarding property investment as the best way of providing for their old age. Thus in the past decade growing numbers of people on quite modest incomes have purchased second properties within Britain , using the rental income to cover the mortgage payments; and even greater numbers have purchased houses for their own use which are far larger than they would otherwise want or require, believing that they can provide for their retirement by ‘trading down’. In addition, perhaps two or three millions – the exact number is unknown – have bought properties abroad, not only as holiday homes, but as long-term investments. This paper will argue that Ricardo and his present-day disciples are right. More particularly, it will propose that overseas property offers one answer – and perhaps the only answer – to the crisis that now confronts UK pensions. The first part will analyze the underlying causes of the pensions crisis, pointing to five paradoxes in which retirement saving is trapped. The second part will show how overseas property offers an escape from these paradoxes. The final part will describe a particular way in which the current law relating to pensions can be used to facilitate such an escape.

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