When it comes to investment, how often have you looked back and wished you had a crystal ball? Whether it’s an opportunity that was missed, or purchasing a less than ideal property – many have moments where they look back and wish they had done things differently.
Spotting an emerging market is one of the best ways to protect your investment for the future, but how can you be sure that a location you are considering is the right one, both in terms of future capital growth and also a secure source of income from rental?
Understanding the market cycle
To be able to really capitalise on an emerging market, it’s vital that you understand the market cycle. Roughly this consists of the four following stages:
The recovery phase is the first stage after a recession or drop within a market. During the recovery phase, prices will be at their lowest point. This can be a difficult phase to identify, as from the outside, it still looks like a depressed period, but when uncovered – offers real opportunity for investors.
Phase 2 Expansion
Expansion is when a location starts to return to normal. Signals may include growth in the local economy, housing supply beginning to balance out and job availability increases. Often this is the time when many choose to buy as there is less risk than during the recovery phase, but the market is not yet oversupplied.
Phase 3 Hyper Supply
This is the tipping point between a health balanced market to supply of housing outstripping demand in a location. While oversupply may be an issue, the job rates, GDP and other economic factors remain stable. This is very much the “top of the market” when it comes to property prices.
Phase 4 Recession
The recession phase is the result of over-inflated growth. House prices, jobs, rental demand, and new construction plummets. Default rates on mortgages, loans, and credit cards increase. Businesses close, unemployment rises, and repossessions increase. Eventually a rock bottom in the phase will be reached where real estate prices will be at their lowest, and so re-starts the recovery phase.
When should you invest?
In an ideal world, we would all love to invest in a property, or location when it is just about to enter the recovery phase – but what’s right for one investor may not suit another, and appetite for risk can play a large part.
It may also depend on your longer term plans – so while, spotting and investing in an emerging market may suit a “hands off portfolio” – if you’re considering a location as say, your retirement home, you may be keener to invest in a more established location.
At Benoit Properties, our research team spend a lot of time analysing and understanding the locations in which we work – and are always on hand to give the best advice based on your circumstances. So why not get in touch and find out more about how we can help you to identity, and make the most out of emerging markets.