Property Investment and Recession

There is nothing new about recessions – they have been with us since time immemorial. They form part of what is termed the ‘economic cycle’ – periods of growth and decline which have happened throughout history. These have an effect on all markets and industries including property.

A successful property investing strategy involves buying at the bottom of the cycle, and therefore maximising the financial return. But how does an investor identify this critical moment which determines success or failure for the property investor?

Most economists agree that the economic cycle consists of five distinct stages, each of which flows into the next. These are defined as the peak, contraction, recession, recovery and prosperity. At the peak of a boom property is considered to be overvalued. Credit providers are heavily burdened with debt. As the contraction stage starts, sources of credit dry up, and property sales grind inevitably to a halt.

The price of property and shares is at a low ebb and credit is difficult, if not impossible, to obtain. Recovery commences when credit facilities again become available. At this point institutional investors become involved in the market, moving rapidly to purchase undervalued property and shares. The next stage is prosperity. Prices rise once more, the workforce’s salaries rise and credit providers become more amenable to risk.

So when was the last time we experienced this economic cycle? The last significant correction in the UK housing market occurred in 1991. At that time, banks and other lenders frequently offered 100% mortgages – yes, I know it’s hard to believe but it really did happen. This more-than-generous financing fed the strong desire to own property which inevitably led to the peak of the housing ‘bubble’.

But as the economy slowed a total of 75,540 repossessions followed, partly due to the burden of sub-prime debt – does that sound familiar? This represented the highest recorded in any one year (so far) and spelt obvious heartbreak and misery to those concerned. The market did not seriously begin to recover until 1994. At that time the UK economy was registering 4.2% GDP growth, the highest level for six years. The sustained economic growth, combined with rising incomes, meant people could afford larger mortgages. Consequently, demand for housing rose.

Most people view property as essentially a stable asset, despite the peaks and troughs that occur at the various stages of the economic cycle. Unlike investment in shares, a property owner has a tangible asset of bricks and mortar. A constantly expanding population will always need somewhere to live, and therefore there will always be demand.

Knowledge of economic cycles and the property market means one can begin to predict the upswing in a market. The current financial crisis has strong parallels with that of the 1991 crash. The beginning can be traced to early 2007, when the total value of sub prime mortgages was estimated at US$1.3 trillion. Rising property values resulted in lenders taking more risks. The number of credit providers began to collapse under the weight of defaulted loans, with the most notable example being the once mighty Lehman Brothers. The scale of the problem was becoming horribly clear. As the flow of credit between banks dried up, the knock on effect included reduced lending to consumers and thus a slowdown in the housing market. Once interest rates are low enough, credit flow becomes liquid once again. At this point institutional investors enter the market, confidence returns and the upswing begins.

Usually upswings begin in the same place the downturn began. The US housing market is therefore key – as soon as it begins to pick up then it can be seen as a sign for the rest of the world. Standard & Poor, the ratings and analytical company who produce the US Case-Schiller housing index, believes the market will reach the very bottom by October 2009. It also states that investors should start to consider purchasing property as credit becomes more available.

Global property investors should also consider countries and regions which have not suffered so savagely in the current economic downturn. Central and Eastern Europe saw a slowing of their economies and Bulgaria in particular has been unaffected by toxic debts.

But there inevitably remains a strong element of doubt. Who can tell whether the London property market has hit its lowest point? Unemployment looks certain to increase, with a consequent rise in repossessions.

Investment in property carries an element of risk. An assessment of the economic cycle may reduce this, but it cannot be expected to eliminate it.

Property Investment

Investing in property is not just finding a place that a person could call home. Over the years, investing in property and real estate has become more of an investment vehicle, with the real estate market providing a lot of opportunities to the investors wanting to make big capital gains. In recent times, many investors are showing their interest in the UK property market, with the UK economy past the worst of recession and genuine growth near at hand. In recent months, there has been an increase in sales in the Central London property market; the prices of prime properties in London have also increased. As of now, property investment London is making a lot of sense.

Having taken the decision to invest in the London property market, potential investors would need to be clear about some other details as well. They would need to decide on the specific sectors in which they would want to invest their money. They could buy properties in the individual house market or go for new property developments London. Over the last couple of years, these two sectors have performed strongly; capital has appreciated the right way and the property owners are also able to find tenants quite easily.

The next step in property investment London is to identify central London estate agents of repute. These experts and professionals can offer advice on prime locations for investing, introduce the investors to the developers, facilitate loans from banks and finance houses, and even help owners maintain their properties to maximise the capital and letting value of the same. The investors, wanting the services of property tax accountants and solicitors, can also depend on their estate agents to address this need.

There are some well-established real estate agents that can help you with property investment London. Some of these come with full fledged web sites and so accessing their services is that much easier and hassle free. These real estate agents would acquaint you with the best Central London properties and assist you in every possible way. One could say that they have a broader perspective on the London property market and you can make the most of their experience and expertise to invest in the best properties in the area. So, whether you are in need of family houses in Central London that you can sublet or are interested in new developments in the area, the right kind of real estate agents would help you find just the place you are looking for.