Could we see a worldwide property market sell-off?
While the worldwide property market has in general performed admirably over the last couple of years there are concerns that problems in the commodities market and the outlook for the worldwide economy could impact worldwide property prices. Over the last few weeks we have seen the price of oil half, we have seen an array of commodities come under serious selling pressure and stock markets have reacted negatively to these moves. So, could property be the next big sell-off?
Everything is relative
Even though it would be foolish to suggest that the valuation premiums on property around the world are in any way similar, with local markets impacted by local situations, everything is relative. The main barometer of measuring asset values against each other is the worldwide economy which is coming under serious pressure amid a glut of oil and major problems in the commodities market. To make matters worse this has now translated across an array of worldwide stock markets with investors concerned about the short to medium-term outlook.
What does this mean for the property market?
In times of trouble people tend to go for commodities such as gold but there has been a shift in investment strategies over the last few years. While gold is still relatively popular in times of trouble, seen as a safe haven, it is not as popular today as it has been in times gone by. Some would argue the property has become a safe haven investment for some investors this is not necessarily the case.
Quote from PropertyForum.com: “Is it time to take a contrarian approach to real estate investment?”
It is also worth remembering that there are a number of “frothy” property markets around the world which have risen significantly over the last couple of years. These are perhaps the main markets susceptible to ongoing concerns about the worldwide economy with more wealthy investors perhaps looking to take profits and repatriate funds where relevant. So not only do we have the “relative valuation” argument but we also have a situation where some investors may look to take profits if the outlook for the worldwide economy does not improve in the short term.
Looking back at the Dubai property market
Those who do not believe that investors will take profits on” attractive investments” in times of trouble only need to look at the Dubai property market of 2008. Just prior to the U.S. led crash in the worldwide economy we saw some investment experts suggesting Dubai was something of a safe haven and unlikely to fall as much as the general markets. However, not only did we see the downgrading of the valuation premium, compared to the rest of the world, but we also saw investors banking profits, running for the hills and repatriating their funds.
Conclusion
One of the more popular sayings in the investment arena is to run your winners and cut your losers but sometimes it is best to cut your winners if the economic climate is uncertain. It will be interesting to see how the worldwide economy performs in the short to medium term and indeed whether concerns within the commodities market continue. The fact is that no investment market around the world can fight against the tide forever and a day and if the worldwide economy struggles then this will cause ripples across each and every investment market.