Is it time to consider a contrarian property investment strategy?

Over the last 12 months we have seen a major increase in property prices across the UK, especially London, Dubai and there is even interest in some of the USA’s more depressed property markets. There are certainly more than enough hotspots to chase if you are into this particular strategy although many are now looking at a contrarian property investment strategy which could prove to be extremely lucrative in the long term.

So, what is a contrarian property investment strategy and exactly how does it work?

The trend is not your friend

A contrarian property investment strategy basically means looking at potential investments in market which many would deem to be “bombed out”. This could take in areas such as Europe, more specifically Spain, Portugal, Cyprus and Greece, where property markets have been under enormous pressure amid rumours that commercial banks are looking to offload their unwanted assets at any price. On the surface, these types of markets would seem to be the ones to avoid in the short to medium term?

As and when so-called bombed out markets start to return to what investors would deem to be “fair value” we will start to see forecasts for the short to medium term, we will start to see some investors dipping their toes in the water and general interest will start to increase. We may see forecasts that the market will turn within six months, we may see large investors looking to “bottom fish” and this is the time to start looking.

Quote from PropertyForum.com : “How do you think the worldwide property market will perform in 2014? Will we see the emergence of some new property hotspots? Will London continue to push further and further ahead? There are some interesting opportunities in the worldwide property market which include Europe where property prices are still under pressure. Do you think the likes of Spain, Portugal, Cyprus and Greece will recover in 2014?”

Everyone tries to jump the gun

If so-called “experts” in property suggested that the Spanish market will turn within six months you can bet your bottom dollar that value investors will start to look at the market before the six-month period is up. What may start as a trickle of speculative investment could very quickly turn into a fairly decent flow which has the potential to reduce the expected six-month turnaround period, flush out forced sellers and then buyers will begin to dominate the market.

There will need to be some kind of trigger for this particular move, maybe tentative signs that the local economy is improving, the worldwide economy is picking up or indeed local banks and financial institutions are willing to start lending again. This trigger can take many different forms and indeed we may see a number of relatively obscure elements coming together to indicate what could potentially be a strong buy signal.

Staggered investment

While some people will do their homework in great detail about so-called “bombed out markets” the fact is that finding the bottom of a depressed market is like catching a falling knife, impossible. Therefore what many property investment experts will advise is staged investment over a prolonged period so that your initial investment gives you a foothold from which to work.

If you believe there is long-term value in the market and prices move lower then you can pick up multiple tranches of property on the way down. Alternatively, if the market picks up and prices reflect new-found confidence then there is nothing wrong with increasing your exposure on the way up knowing that your initial investment will bring down your average cost price. The simple fact is that no investor will ever be able to predict with confidence the bottom or the top of any property market. They may be lucky and hit the top or hit the bottom but human nature and investment sentiment are very fickle and can move very quickly. Picking up property in one market or an array of bombed out markets over time, assuming your opinion does not change about the long-term value, can prove to be extremely lucrative.