February 23, 2006
Avoid the Herd: Property Purchase in Spain's Downward Market
Another question I commonly get asked.
"How will I know that the price I bought for is the lowest achievable price I can get. Surely its better to wait while the market corrects and then buy a property?"
In every market it is nearly impossible to guage when that point is coming.
Let’s just consider the psychology behind decision making in a property boom scenario. In Spain people were happy to throw money at property despite the grossly over inflated prices. Late stage investing in a bubble market runs contrary to good economic sense, yet people make the mistake of getting caught up in emotional furore of greed and the potential to make great short term profits while the market continues to climb. Investors never buy assts; per se. they buy flows of future income.
Very often speculators (who may even have had a successful history of investing in the market) over extend themselves at these points and suffer the worst impacts of a price crash.
So ask yourself this question, why is it throughout history that prior to every bust in every market, there is always a period when speculative buying goes through the roof and prices over heat?
The herd mentality that often makes us jump on band wagons is caused by our inherent fear that we may miss out on an opportunity. We are extremely susceptible to the slick marketing. IMO if an investment needs a slick, expensive marketing campaign and it is not a luxury item or product then it is almost certainly not an investment.
So what are the benefits to starting to look at the investment potential of a downward trend in the property market of the Costa del Sol?
Well most importantly, buying opportunities finally start to present themselves as insecurity and instability rise. Vendors become negotiable on terms and for those with the right contacts a great deal can be achieved. Projections for the Costa del Sol still look very good, in fact the area is predicted to experience the same demographic shift as California. Before you buy a property do your maths and follow this guiding maxim:
“A good investment is buying a property at a price that underestimates its real value or the return it will generate in the future.”
Why has property been used as an investment vehicle?
Over the long term property represents a safe investment for the following reasons:
Property is a tangible asset with an intrinsic value; it will always be worth something. This makes property a more secure investment than shares.
The down side to property is that:
So if you come across what seems to be a good property, and the research and advice you receive demonstrates that it is a good investment over the long term, and you have the intention and the ability then my advice is buy it, make it work for you as either a great holiday property or a rental and wait.
Category: The Great Housing Debate