Is it time to look at oil dependent real estate markets?

Over the past few months there has been significant focus on the oil market with the price of a barrel of oil falling by around 50%. Indeed just yesterday we saw the US government announce higher-than-expected oil reserves which prompted a reduction in the price after a relatively encouraging short-term recovery. Many are now starting to ask the question, is it time to look at oil dependent real estate markets where the price of property has fallen significantly?

Oil means money

Oil is not called “black gold” for nothing because as countries such as Canada and the UK to a lesser extent have seen, it does attract significant investment and significant wealth. There are many examples of this around the world and indeed over the last few months many of these oil dependent countries, or specific areas of countries, have seen reduced demand for property and in some cases significant price reductions. After yesterday’s news that the US government has increased its oil reserves, suggesting it may not be such a strong buyer in the short term, is it time to look at real estate markets which have a relatively strong connection with the oil market?

Sentiment is everything

There is no doubt that when markets are flying high and sentiment is good, prices can often get ahead of themselves and the same can be said on the downside. This is why some property experts are now wondering whether oil dependent real estate markets have been oversold in the short term especially when you consider that many experts believe the price of oil will gradually recover. We are not suggesting a recovery to the $110 per barrel level seen over the last few months but there is no reason to suggest it will not recover significantly above the current level in the medium term.

It is also worth noting that while prices have fallen in these areas you may even be able to negotiate further reductions if investors are desperate to sell. In many ways, less experienced investors are like sheep in that they tend to follow one another leaving potential opportunities for those with perhaps more experience and a long-term investment plan. There is no harm in trying to reduce prices even further during the negotiation period because let’s face it if there was competition for these properties then they would have been snapped up some time ago.

How quickly could we see a recovery?

A lot will depend on the price of oil in the short to medium term but sentiment alone can support prices in the short term and it could also lead to price rises. If we see expert investors changing their opinion on these depressed markets then many of the “sheep” might start to follow and very quickly become the power behind a new momentum. While momentum and sentiment can only take the market so far, if the price of oil itself recovers, this could throw up some interesting short, medium and long-term opportunities.

In many ways it is those brave investors willing to go against the trend who have the potential to pick up relatively cheap properties which offer good long-term potential. They may not buy at the bottom of the market but if they are correct in their long-term assumptions they will be buying far nearer the bottom of the market than the top.