Why niche property markets could help wider investors

Even in the most difficult of times for the worldwide real estate market there were still many so-called niche markets which were performing surprisingly well. Niche markets can emerge from areas which have perhaps been under pressure or where there is a change in the local business/social scene. Indeed if we look at areas such as Dubai, which emerged from nowhere at the turn-of-the-century to become the hotspot of the decade only to collapse in 2008, this perfectly illustrates the large array of different elements which impact a niche market.

While, quite rightly bearing in mind the term niche, many people assume that these areas have little impact on the wider market this is not always the case.

Property value is relative

There are many ways to value property whether this is through potential capital growth, rental income or more traditionally a mixture of the two. However, the fact is that property value is relative to the area, the country and type of property. As a consequence many of the so-called niche markets of years gone by have started relatively small and then gone on to impact the wider marketplace.

If we take for example a small area of a large city, which is now fashionable, there will be significant interest from investors in that specific niche market. However, once this area of the real estate sector becomes overheated, with perhaps better value on the outskirts, then people will start to widen their search. As a consequence, while the centre of the niche market will likely remain the more active and more expensive area it will drag the value of surrounding properties higher simply because of the relative “value for money”.

Niche is not always best

Niche markets are often referred to in this way because they are relatively small and there is often a distinct lack of property for sale. As a consequence and we have seen this time and time again in years gone by, the price of property in a niche market very often ignores traditional valuation methods. As and when the surrounding areas start to come into play, as investors widen their search criteria, this can take some of the steam out of the central marketplace. Indeed, there have been numerous examples of property on the outskirts of niche markets delivering a better return compared to the niche markets themselves.

There are many ways to make money in the real estate market and while spotting niche markets before they reach their popularity peak is one, many people also make significant returns by forecasting the expansion of niche markets which bring into play surrounding areas. When you consider that on the way up the price of niche property markets often bear no resemblance to traditional valuation methods, due to the relative size of the market, this can be the same on the way down. If there are sellers looking to dump their niche market property but few buyers then the fall can look dramatic pure and simply because the valuation was potentially overstretched in the beginning.

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