Is it time to dip your toe into bombed out property markets?

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We only need to look across Europe to see the likes of Greece, Portugal and Spain with property markets which are struggling to move forward. While Portugal and Spain have seen a little interest of late there are still significant supply issues with unwanted properties, held by the banks, still overshadowing the market. At some point these properties will be jettisoned at the best price available which could impact short to medium term price movements as the market rebalances.

However, while some of these markets may be struggling at the moment, is it time to dip your toe into bombed out property markets with a long-term view?

Always darkest before the dawn

As the “hot money” continues to chase already buoyant and potentially overvalued property markets around the world, what about those struggling in the short to medium term with good long-term potential? In terms of investment markets it is always “darkest before the dawn” and let’s face it, Greece, Portugal and Spain have certainly been through some dark times of late.

The problem with “hot money” is that it can push property prices to levels which are unsustainable and it is literally a race for the exit when the markets do turn. These are often investors who work on fairly thin margins attempting to jump on board new and potentially lucrative trends. It is certainly possible to make some good returns chasing the latest property hotspot but one bad investment could wipe out an array of successful ones.

Long-term strategies

There is no doubt that some people do make good money on short-term property punts but if you look at those who have made significant money from their property investments they nearly always have a long-term view. These are the type of investors who would slowly start to acquire Spanish property for example, which many argue offers good value at current levels, looking to build up their exposure if markets fall further in the short term or does indeed turn a corner.

In the medium to long term there will come a day when Spanish property is back in vogue and everybody will be jumping on board. So, if this is the given opinion on the long-term prospects of Spanish property then why wait until it recovers before you start picking up assets?

Sentiment does impact pricing

How many times have you read about a buoyant property market looking “overvalued” purely and simply because of the massive wave of investment funds? This type of strong buying often pushes prices over and above their perceived fair value showing that sentiment can have a short term impact upon prices. In the longer term buyers and sellers will balance each other out and the markets will find their own level but a sudden injection of significant capital, on the back of buoyant sentiment, can and does impact short-term price movements.

On that basis, if a property market is deemed to be “bombed out” then this sentiment issue works the other way because with fewer buyers, prices will fall possibly below the perceived “fair value” and there may be some interesting long-term investment opportunities. Sometimes it is difficult to understand why those who follow markets with positive sentiment, jumping on the latest trend, don’t show as much interest in struggling markets where property can be picked up at less than “fair value”.

Is it simply because those chasing the hot money and the latest trends are only interested in a quick buck?

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