Is Property Investing Ethical? (What you need to know)
Property investing remains one of the most popular ways to build wealth. Everyone seems to know a friend or relative who made money through this form of investment.
But is property investing ethical?
Yes, investing in property can be ethical. It can arguably be the most ethical form of investing available. That’s because it caters to several basic human needs. People need properties like homes to live and raise families. They also need commercial and industrial properties to make a living and contribute to the economy. Still, you must do your research to ensure you’re investing ethically.
This guide will show you why property investing is ethical. Then, you’ll discover the ethical concerns associated with property investing, so you can evaluate an investment before committing your money to it.
Is Property Investing Ethical?
Yes, property investing is an ethical way of putting your money to work for you. You could even argue that this form of investing can be the most ethical (and profitable!) way to grow your wealth as, depending on your scale of investment, you get to control a lot of the factors involved.
Sure, a few bad apples in the real estate industry behave unethically. Unfortunately, that’s true no matter the industry you invest your money into.
However, those unethical parties are the rare exception. They’re certainly not the norm.
Investing in real estate is an effective way of building wealth in the long run. But, more importantly, putting your money in property investments also does a lot of good for your local economy.
Here’s how:
Properties Are An Essential Need
Real estate properties are an essential need in so many ways.
For example, people need homes to live in and start their families.
Meanwhile, commercial properties provide spaces and facilities for businesses to operate. Lastly, industrial properties allow companies to produce the products people need to survive and enjoy their lives.
Altogether, those properties contribute significantly to your economy at local and national levels.
The dollars you invest in this sector will go towards developing the property types you choose, benefitting the people who need them the most.
Property Developments Create Jobs
Your property investments can create a ripple effect.
For example, investing in new property development will lead to the creation of many jobs. Firstly, those developments will need contractors to refurbish and or construct those buildings. Then, once they’re up and running, businesses will move in, and they’ll need workers, too.
Of course, let’s not forget about those who help maintain and secure those buildings.
So, while your wealth grows from your property investments, other people will also benefit economically from the jobs that your investments help to create.
What Are The Ethical Concerns Of Investing In Property?
Every industry has a unique set of ethical concerns that you must be aware of. When you understand what they are, you can rest assured that you’re making the best investment decisions possible.
When it comes to investing in property or real estate, here are the potential ethical issues:
Information Asymmetry
When it comes to property or real estate investing, one side of any transaction typically has access to more information than the other. That condition is known as ‘information asymmetry.
For example, a landlord will know of any problems in a property that can affect whether or not a tenant agrees to rent the unit.
An ethical landlord will share that information even if it could discourage the potential tenant. However, an unethical one will hide that information instead.
You can keep your property investments ethical by putting your money with businesses that maintain the balance of information and are as transparent as possible.
Alternatively, if you buy a property and become a landlord, you can do the same by being transparent with your potential tenants.
Land Grabs
All property developments sit on top of bought land. So the question is, how was that land obtained?
As a property investor, you must do your research to understand how the developer obtained that land. Was it bought legally from the previous owner and at a fair price? Or was it the result of unethical practices that amounted to a land grab?
Environmental Sustainability
Pretty much every industry in the world today faces environmental concerns. Therefore, when evaluating a potential property investment, you must always check to ensure that its development or operations do not harm the environment, locally or where ever the materials come from.
For example, some industrial properties might not be built with proper drainage and waste disposal features. As a result, these properties could harm the local environment through water and air pollution and are not good investment options for you.
The materials used in the properties may also not have come from sustainable sources causing environmental damage or pollution at their source.
Workers’ Wellbeing
As you’ve seen in the previous section, property developments create many jobs. That’s true both during construction and after the building is in operation.
However, ethical investors like you must ensure that those workers are treated fairly before investing your money. Unethical practices, unfortunately, also affect workers’ well-being.
Second or holiday homes
Is owning a second or holiday home ethical? This is where things potentially get a little trickier.
You obviously don’t need a second home because you already have your first one, the one you live in.
It’s now very common for second homes to be the main source of housing in many idyllic locations.
Basically, people want to have their holiday home at any place that looks nice.
They don’t want to live there all the time, there aren’t the jobs, nightlife or things to do but they are nice places to visit when the weather is nice.
The second homeowner gets to have a nice holiday home whenever they like and rent it out the rest of the time to create another source of income.
However, it’s not necessarily such a rosy deal for the people who come from the second home locations.
- The price of houses goes through the roof – often beyond what the local wages can afford.
- Houses are often empty at different times of the year, meaning local businesses have to cope with the highs and lows of holiday seasons.
- As a result of the above, there are limited homes available for locals, and seasonal jobs make living and working in the area more and more difficult over time.
- Essentially the second home locations become packed during the holidays and empty in the office seasons. In extreme cases, second home locations can become like theme parks.
For these reasons, you might want to consider the ethics of investing in a second or holiday home and see how and who would be affected by this choice.
How Can You Invest In Property Ethically?
Most stakeholders in the property sector are ethical and responsible. Still, investors like you must always do your homework to ensure that you’re putting your money only in places with high ethical standards.
Here are some quick tips to help you do that, whether you’re investing in a single-family home or buying stocks in a top-rated property developer:
- Read all available documentation: Most of the information you’ll need as an investor is already available. For instance, property developers will have annual reports and prospectuses. So your first step is to read those documents and ensure that the business ethics are aligned with yours.
- Check the news and business reports: Investment documentation is good but could also be biased. So next, check news and business reports related to the investment. If there is any controversy linked to it, there will likely be public reports about it.
- Visit the location personally: Do you know why they call it ‘real estate? Because the property is real, you can see it with your eyes and touch it with your hands. If you’re investing in a specific property, take a walk around the area to see if there are any signs of unethical practices, like improper waste management.
Final Thoughts
Property investing can be an ethical investment if you are able to manage the building, maintenance and letting processes in an ethical manner.
Property development and investing help the economy and people’s lives in many different ways.
While the sector is generally ethical, you will still need to be aware of potential bad actors who do not follow the rules or stick to your expected high ethical standards.
So, as an investor, you must protect yourself by doing the necessary research before committing your hard-earned money to any investment.
In doing so, you can enjoy the returns on your investment with lots of peace of mind.
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