If real estate is profitable why can't financial institutions engage in it ?

[Sotherefore]

We all considered real estate to be one of the best form of offline investment based on the fact that people can be able to make hundred percent of their investment within a period of few years depending on the property they have invested their money on .

We all know real estate is a profitable business and people are really making a lot of money from this form of investment but does it really mean that it is only people from a certain tribe or people with a certain status in the society are able to make money with real estate investment ?

I am believing that since it is a nice venture that people are Investing on , I was also expecting to see financial institution like the banks and microfinance banks to also engage in this business for the main purpose of generating interest for themselves and also to their investors. .

If I have an opportunity to operate a financial institution I will use the money of my investors to invest in real estate so as to make enough profit , but I don't really see any financial institution engaging in real estate business even when they have enough money in their system, what could possibly be the reasons ? Share you opinion.

 

[Alexandoy]

Pardon me for laughing at your ignorance. Any kind of business needs a permit to operate. The nature of the business and its operation are specified in the business registration (department of trade for single proprietorship and SEC for corporations). A bank's registration with the securities and exchange commission stipulates the specific nature of business which is banking - receive deposits, lend money, provide trust services. I don't think a bank's registration will be approved if it contains real estate development or even a realty business. That is how the business industry works. It has the segments of industries that have specific purposes. It would be absurd to go to the bank's branch and see a counter for a fast food because the fast food is profitable so the bank decided to have an outlet in their branch.

 

[sincerem]

Bank is simply for a business, they lend people money, engage in stock and share trading, forex market etc. They lend money to civil servants, business men and women, to help assist their business. Banks have numerous of business options to go into, even if they don't go into real estate investment. They borrow/lend people money to go into real estate building, at the end of the loan duration they simply make profit from their services. You wouldn't just expect banks to go into real estate investment without thinking it's future prospect, if their will be a profit or loss for them when they go into real estate business.

They wouldn't go for all business, they have selected business options, it will be too much on banks to operate on all business fronts, such can drag their concentration away as banking institution to another look, that's why they work with ethics and mode of operation to keep their objectives and business operations intact.

 

[Shaf]

It's probably not allowed by regulatory bodies for banks to do such. That's why there are mortgage banks for such.

Also, a rational look will let you know that involving banks in such a niche could make property ownership difficult for people, which the government won't want as it would lower the standard of living.

Another factor could be the capital involved in it. Real estate, especially large scale requires lots of money. While banks can lend smaller amount and make profits on it all the same. It also takes significant time to start earning from it, and a much longer period to even recoup the capital spent.

That won't be attractive to banks that use other people's money for business.