Whether we like it or not everything goes in cycles whether we are looking at working practices, food preferences or investment in property markets. Gordon Brown once famously suggested he would beat the boom and bust which dominates the direction of economies around the world although he was unable to deliver on his promise. The simple fact is that for a variety of reasons property market cycles occur and there is nothing any of us can do in isolation to stop this.
Human emotion
When looking at investments we are often told to look at the cold hard facts and see whether a particular asset is good value, fair value or overpriced. From a pure statistical point of view this is fairly easy to do by simply comparing and contrasting with local properties. Job done?
Unfortunately human emotion in the shape of overbought and oversold markets can have a material impact upon the so-called fair value of any asset never mind just property. While human emotion can be difficult to predict those savvy investors willing to bide their time can improve their returns by playing the human emotion game. If investors have a “downer” on a particular property market then it is likely it will become oversold at some point and there may be long-term bargains to be picked up. Bide your time, follow the market trends and try to gauge the feeling on the ground.
Uncertainty breeds uncertainty
Uncertainty is the one factor which any investment market has trouble digesting because there are no definitive facts and figures to work with. If you know how the economy is going to perform in the short to medium term, the direction of interest rates and other factors which impact investment markets, then we can plan ahead by factoring in these particular variables. However, if the short term is very uncertain then it is difficult to find a basis for any reliable forecasts.
Even in a worst-case scenario it is fairly simple to arrive at so-called “fair value” figures and very often these are nowhere near the figures which uncertainty can create. If you are entering a market where there are particular uncertainties but you have a long-term vision of recovery you may find some extremely attractive propositions.
Regulatory intervention
History shows us that politicians are very keen to penalise successful and buoyant investment markets with an array of increased taxes to “share the benefits”. The fact they are not as keen to share these benefits when the markets are struggling is often overlooked but regulatory intervention often has but a short-term impact as markets come to terms with the medium to long term implications. If you follow property markets around the world you would be surprised to learn how quickly they can rebalance themselves taking into account factors such as regulations.
The property cycle is going nowhere so just embrace it
Whether you are looking to sell into an overbought property market or acquire property which has been oversold there are opportunities aplenty around the world for those with a focused mind. Human nature dictates that we will “get carried away” with buoyant property markets and overdo the doom and gloom when markets are in trouble. If you stay calm, research all elements of a particular market there are ways and means of riding the waves to your benefit.
Gordon Brown was not able to break the boom and bust cycle for the UK economy because in reality an investment market is simply an information exchange. Markets simply digest the views and opinions of all participants and arrive at a level – a level which does not always seem to be “fair value”.