Knowing when to move from defensive to growth real estate markets

Since 2008 the world economy has struggled and while some real estate markets have performed admirably during this period others have struggled to gather any momentum. We have seen the obliteration of more speculative long-term growth markets in favour of short-term defensive markets such as London and areas of the US. Even the previous safe haven of Europe has come under immense pressure with the troubled Euro dragging the region down. However, when should you consider moving from defensive real estate markets to the more speculative long-term growth opportunities?

Can you trade the property markets?

While there is no doubt that a long-term investment horizon for property investment does yield the greatest returns there are many people who trade property markets around the world. The ability to jump from one market to another at the right time is priceless and while there are obvious risks there are plenty of investors who make a living from this. So, in theory it is possible to trade property markets around the world although in reality it is not that simple!

Why do people choose defensive investments?

Defensive investments often offer a relatively high income when compared to base rates at the time. In some ways they are a short-term “home” for your money and while there is potential for asset value swings it is often the flow of safety first funds which keeps these particular investments relatively stable. However, with any investment you are measured against comparable markets and if you are stuck in defensive real estate assets when the appetite for more speculative growth opportunities increases, many advisers and investors feel obliged to act.

While they offer nowhere near the security of a bank account many people feel happier investing their funds in defensive assets in times of trouble.

Switching to more speculative growth opportunities

The one thing which moves markets in an instant is the risk/reward ratio and when this moves it can have a dramatic impact upon valuations. In times of trouble, such as the economic downturn we have experienced since 2008, the risk/reward ratio for more speculative real estate growth opportunities certainly tips in favour of a higher risk therefore fewer people actually move into these markets. As the economic situation begins to settle down and, eventually, move back into a growth period then investors will feel happier perhaps investing part of their funds in the higher risk/potentially higher reward markets.

There is certainly a skill in timing a switch from more defensive assets to those offering greater growth opportunities in the short, medium and longer term. The truth is that very few investors will switch all of their funds from one particular market to another and will more likely drip feed from defensive real estate assets to the more aggressive growth orientated opportunities. The reality is that you will never buy at the bottom of the market and you will never sell at the top. If you manage to sell nearer the top than the bottom and buy nearer the bottom than the top then this is a good start.

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