Does political instability offer a buying opportunity for real estate investors?

There has been enormous political unrest around the world over the last couple of years and while some of this has calmed down of late, area such as Iraq, Syria, Egypt, Ukraine and even Brazil are still wracked by political and civil unrest. There is a train of thought that political unrest can lead to potential long-term buying opportunities for real estate investors. So, can political unrest really lead to significant buying opportunities or do long-term investors remain fairly calm during these difficult periods?

Short-term sentiment

There is no doubt that political/civil unrest does have at least a short-term impact upon sentiment with regards to investors, the public and business, although very often this short-term unrest does not have a major impact upon property markets. It might be different if we were to see medium to long-term political/civil unrest because the longer the uncertainty for investors and businesses the less chance that money will be pumped into any one specific country or market.

Property by its very nature is generally seen to be long-term and indeed whichever country you are looking at there will be a significant number of homeowners who are not necessarily in a position to sell up and move on. There may be short-term selling by speculative buyers, there may be a markdown on short-term property values but buying opportunities will only really arise if there is property available to buy – the supply/demand equation.

Quote from PropertyForum.com : “Do you believe that the Hong Kong property market is overvalued? Is there a need for consolidation in the short to medium term? Are the authorities doing enough to protect the Hong Kong property sector?”

Look long-term for the best returns

If we look at countries such as Egypt, which has a very active real estate market, there has been significant unrest of late and indeed political change. This has impacted some property markets around the country but in general investors are still looking longer term and indeed they may see possible government change as a long-term positive?

It is no coincidence that the vast majority of pension funds around the world have a significant exposure to real estate whether this is business or domestic. We are also seeing major changes in the way in which the general public view property/real estate with a significant shift in countries such as the USA which has historically been a rental market. Many people in the USA are now looking towards purchasing their own property and while the 2008 mortgage crisis may have seen some people delay plans to buy their own home, there is still a movement towards purchase of property as opposed to rental.

Weighing up the risks

As with any investment, whether stocks, shares, property, etc, the simple fact is that you need to weigh up the potential risks of an investment in a particular market against the potential returns. If the risks outweigh the potential rewards then perhaps it is time to think again, but if the potential rewards outweigh the potential risks, at least in your own mind, this may indicate a buying opportunity for those looking longer term.

Any investment adviser will tell you that property is a long-term investment and if you buy real estate/property with a short-term objective and with funds which you may have to cash in at any time, you are taking a chance. You could pick the right market, you could pick the right asset but you may pick the wrong period in which to invest and if you are forced to sell up because of external pressures, this could have a serious impact upon your potential returns.