Over the years we have seen numerous new and exciting property markets come and go, some have lasted up until the present day while others have literally died overnight. But throughout it all there are a number of stages which the successful emerging markets will follow before they become a ‘developed market’. They will not all be exactly the same, they will not all take the same amount of time but there are definite similarities between many of the developed markets we know today and the stages they went through.
Stage One – Hope
If you look back in history you will always see that there has been one event, one hope or one spark to light the fire for a new emerging property market. Of late we have seen a number of markets begin when a country announces an intent to join the EU for example. Each and every property investor knows that joining the EU in the current climate will see the new entrant enjoy masses of EU funding to get the country in order.
If EU membership goes ahead as planned then you will see the country open up to foreign investment, with fellow members of the EU often given a privileged status over other non-EU member countries. We have seen this in Bulgaria, we have seen this in Romania and we have seen this in many more new and potentially exciting emerging markets.
Stage Two – The Speculators
At the first mention of possible entry to the EU for example the speculative property market investors will stick their heads above the parapet. They will do their homework on the likelihood of this earth shattering event happening and then they will look to pick up property in the region if it looks good value against the possible prospects for the future – this is where the risk factor is high.
This is when slowly but surely we will see the emerging market bandwagon start to move and if progress goes to plan then this speculative demand will grow and grow until the authorities realise that they need to make amendments and adjustments to their existing property investment laws to try and regulate what could turn out to be a dangerous property bubble.
Stage Three – Government Intervention
In a number of new emerging markets of late we have seen many governments caught by surprise with the number of speculators taking an interest and the amount of money flowing into their country. As the market grows we will see speculators transacting with each other and the possible emergence of property hot spots which need to be addressed by the authorities.
If for example we are talking about a country which has joined the EU then there will no doubt be a period of reflection during which time the laws and regulations of the EU, with regards to property investment, legal frameworks, etc, need to be introduced to the country’s statute books. This can often take time, cause confusion in the market and when the new regulations are finally introduced this can be the first prompt for the speculators to consider their positions.
Stage Four – Speculators Out
As a new property markets starts to move from an emerging market where the legal and regulatory framework may be a little weak to a more organised environment this can be the sign for the early speculators to sell up and move to the next new market. Very often these speculators are only interested in catching the markets cold, taking a little more risk than traditional investors, and then when they see the initial pickup and traditional investors start to take an interest they then have the buyers for their investments.
Stage Five – Long Term Investors
As the speculators continue to move out we often see more traditional, risk averse property investors joining the party. They have watched the early stages of development, they have seen the authorities step in to improve the legal and regulatory framework and they are now happy that the country has a solid base for the future. While this is a little simplistic in some ways, investors will also be looking at the prospects for the economy and the fact that it is likely to have performed fairly well as the property market pushed higher and higher from its initial low base.
Those are the five very basic stages from which an emerging property market moves from one where the risk is high to one where the risk is still there but greatly reduced. Even though the basic stages are the same for most emerging property markets which finally become developed property markets, such as Dubai, the length of each stage can and does vary from country to country as there are no hard and fast time scales during which the process should be completed.
Type of investor
As we all know there are many different types of property investor, those looking for capital growth, those looking for income, those looking for mature markets and those looking to take a little more risk on a very early stage emerging property market. The beauty of the different variations is the fact that as long as the underlying economy is solid then there will be different property investment groups looking to acquire property at different times of the cycle, sellers will have their buyers and buyers will have their supply line.
When you look at the average emerging property market, if there really is such a thing, there are a number of definite stages during which they will pass as the country, the economy, the government and the property market progress. We really do have both ends of the spectrum becoming involved at very different stages with the more speculative buyers looking to buy property which may be rock bottom and literally friendless before investors start to appreciate the potential.
As the markets pick up, in a perfect world, the authorities become more involved and the markets become more regulated. This can often mean the end of sharp practices and more unconventional property investments by the speculators. Then as the markets settle down under an improved legal and regulatory structure the long term property investors will then start to take a look, the investors who prefer to see a solid base before they commit there money.
This in essence is a rise, fall and then rise again of your traditional emerging market as it moves towards becoming a developed property market.