Global Sound –
Is a Global Real Estate Market Crash Really Imminent?
Have you heard of the butterfly effect?
It’s a chaos theory concept whereby theoretically a butterfly flapping its wings in one part of the world and creating a tiny change in the atmospheric conditions around it could cause a chain of events leading to a catastrophic tornado reaping havoc on our lives elsewhere in the world for example.
It sounds dramatic doesn’t it?
Well, it’s a concept being cited right about now in many media reports, articles and press releases relating to the state of real estate marketplaces around the globe which is why it’s important that we understand the basic concept of the effect.
The reason why the butterfly effect is being cited is quite simple – recently construction industry shares on the Spanish stock market crashed down as a result of just one more alleged scandal being heaped on many other horror stories relating to the real estate industry in Spain – so now many people are saying that this could just be the catalyst that causes property markets around the world to come crashing down around our ears.
But is a global real estate market crash really imminent?
This is an incredibly interesting question to examine. Never before have so many property markets around the world been so closely interlinked and intertwined. In part property markets are now more linked than ever because we can all travel about and buy real estate pretty much anywhere in the world. In part it’s because a number of countries have actively courted our attentions with regard to their real estate marketplaces because for them foreign direct investment is critical to the success of their economies. Additional reasons include the fact that an increasing number of us recently decided to get in on real estate investing meaning that more of our wealth than ever before is now resting in property markets around the world. Furthermore, we have just been through a sustained and intense period of property price appreciation pushed up by our demand for multiple properties and by our strong purchasing power at a time when many of the world’s economies are doing well, unemployment levels are low and interest rate levels have remained attractively low as well allowing ever greater numbers of people to borrow ever greater sums of money.
So many markets are directly linked and many other markets have simply been similarly affected by patterns of purchasing power for example…therefore theoretically, if one market does crash it could affect all other markets right?
The two main reasons being given for a potential (and probably actually imminent) property market crash in Spain are over supply and lack of affordability. So in markets that are suffering the same conditions a real estate market crash could well be imminent.
In other locations where supply is still well below local and international demand and where property stock remains attractively priced and affordable there is no exact and definite reason why the butterfly effect starting in Spain should cause a crash.
However, if you are considering investing in real estate in a given location/nation you should always consider these primary factors: –
1) What is your investment approach – a) acquiring capital growth or b) earning rental income?
2) If a) acquiring capital growth, what local factors suggest that prices are going to keep on rising? Be sure there is room for sustained growth and that you will be able to exit quickly from the market when the time is right to sell. Make sure oversupply will not become an issue and ensure your potential resale audience will have funds available when it comes time for you to sell.
3) If b) rental income, what does your tenant market desire, how much can they afford to pay for your product, can you buy low enough to attract a decent yield? Select appropriate stock for your tenant market demand.
4) Always, always do extensive due diligence on your market demand – you will not resell or rent real estate that is not in demand so know your market and know the factors driving and affecting your market’s property based decisions.
5) Never put all your financial eggs in one basket – in this case I mean in one commodity such as real estate or even in one single piece of real estate. The key to investment success is diversification.
6) If in doubt, don’t buy!
Rhiannon Williamson writes about international real estate investment and buying property abroad – to keep up to date with global property market movements visit her site http://www.shelteroffshore.com/
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