Avoid short-term greed and fear to beat the property market
Historically there is a worldwide need for more social housing, middle-class housing and luxury housing. Over the decades governments around the world have attempted to manage property development maintaining a greater demand over actual supply rates. The long-term graph of house prices shows the benefit of property investment although for many people it is difficult to avoid the short term greed and fear factors.
When we say greed and fear factors, these are pure human emotions which many people find difficulty in controlling while others take a long-term view.
How do greed and fear affect property markets?
If you take a step back and think about short-term property price movements, up and down, there is a certain fear and greed factor. When house prices are going up there is a fear that investors are missing out and there is sometimes greed on the part of sellers looking for better prices which can squeeze prices higher and higher – causing greater demand and a overheating of the sector.
Quote from PropertyForum.com : “Housing supply in many UK cities is being restricted by the conversion of family housing to student lets and local tenants are being prices out, according to new research.”
If you look at house prices when they are in freefall, there is a fear from current investors that their asset will be worth less tomorrow than today, forcing many to sell at crazy prices. Those who chased prices higher and higher, often to unsustainable levels, on the back of greed will often be forced to take a short-term loss which places further pressure on the property market.
The fact is that short-term fear and greed factors do play a major role in all investment markets and it is often those who are able to discount short-term issues and take a long-term view that will benefit in the longer term.
Location, location, location
The beauty of the worldwide property market is that whatever risk factor you are willing to take for your investment there will be properties to fit your criteria. For those looking for long-term, less volatile returns there are the standard issue properties which always remain in demand but are not always dragged along by the fear and greed factors to the extent of the “trendy properties”.
Location is and always will be a major factor with regards to any property investment, whether this is the actual country you are investing in or the area. If we take one example, the London property market which continues to push ahead to record levels while other areas of the UK are treading water or pushing ahead slightly at best. This demand for London property is something of a self feeding prophecy because when markets turn downwards it is always London which suffers first and, when markets push ahead, investors are often caught in a squeeze pushing prices higher and higher.
Taking a long-term view
As with any investment you should in a perfect world be in a situation where the funds are not required at short notice and therefore you will not be forced into a fire sale. Any investment, whether property, shares, businesses, etc should be seen as long-term although there will often be situations where short-term issues come into play and impact your decision. In a perfect world you would also diversify your property portfolio across different regions, different countries and different types of property.
Historically property is still seen by many as a “bricks and mortar” investment for the long-term and very often it is those who are investing in the short term, where greed and fear can come into play, that get their fingers burned.