It is very easy to write down a number of property markets which look to have exceptional long-term value at this moment in time. The political and economic shenanigans of Europe have impacted many different areas of the world and reduce demand for real estate in the short term. Many people forget that the economic environment we are in today is like no other and is more than just once in a generation. Comparing “value” today to value of years gone by is like comparing apples and pears. So what should you look out for when investing in property in 2017?
Real returns – investing in property
Inflation is still relatively low and base rates around the world continue to bump along the bottom. As a consequence, there is an opportunity to gain significant real returns when taking into account rental income and potential capital gains. There is no need to go looking for the double-digit high profile capital growth or rental markets. Check out rental returns on properties which you think look good value and then crunch the numbers to see whether you believe they will also attract capital gains in the short term.
It is all good and well banking the double-digit short-term capital gains but these are few and far between at this moment in time. So, the opportunity to create a very strong backbone of rental income to keep your cash flow moving should not be discounted.
Bombed out markets
There are some markets which appear overvalued, some appear undervalued and some offer fair value. Over the next 12 months there will be political upheaval right across Europe and this will impact both the European real estate market as a whole and local markets to a varying degree. There WILL be opportunities to pick up potentially cheap property assets in bombed out markets which have been oversold in the short term. You may ask yourself, if everybody believes they have long-term value why would they be oversold in the short term?
Human emotion is one of the strongest drivers in any investment market hence the reason why markets are routinely overbought and oversold. If you think of it as an elastic band, property prices may be stretched on the upside and the downside but they will eventually “spring” back to a fair price in the medium term. If you can acquire relatively cheap property offering good long-term value when property assets have been oversold there is the potential to create a very strong backbone for your property portfolio going forward.
Do not rush to buy
When investing in property many investors have an attitude where it is “all or nothing” when in reality it often makes sense to invest your funds in a number of different tranches. Only when you believe property assets/markets offer good value would you start acquiring tranches of property exposure. If in a worst-case scenario prices fell further then your next tranche would be at a lower level. In the event that prices recovered there is also nothing wrong in acquiring further tranches because in many cases “the worst may be over”.
Take your time, do not take an all or nothing approach and ensure that you keep a very close eye on local economies, regulations and especially the flow of funds from overseas investors. Overseas investors tend to take a more long-term approach to property investment and can often have a bigger impact upon markets than domestic investors.