The British sterling took a pounding to hit a 31-year low after Brexit (Britain’s decision to exit from the European Union) was announced. This has also impacted sentiment in the London realty market, even though this might be momentary.
What the event highlights is both an opportunity and a risk. The opportunity: to invest in a developed real estate market at a hefty discount to historical value. The risk: of seeing value erode on real estate investment due to external factors impacting the city, region or country.
Both the opportunity and the risk present important learning for investors. If prices of real homes in a fundamentally sound city or region see a sharp tumble due to extraneous factors, it can present a great opportunity to go house hunting. If you know for sure that it is the area/city you wish to live in, given all the underlying and dynamic factors at play, there is no better time to go shopping than during a crisis. However, what often happens in such situations is that things freeze — sellers pull out to wait till the uncertainty ebbs. This can impact supply.
Those who can find deals at these times, that suit their needs, will likely reap handsome long-term gains on their investment. So, if you know of an impending big event that will most likely hurt sentiment in the market, wait for it to get yourself a better deal.
From a risk mitigation perspective, not putting all your real estate investments in the same micro-market, city, region or country can help you spread your risk. Gurgaon, in NCR, for instance has recently seen official property rates being revised down, even as those in cities like Bangalore have been firmed up.
This reflects a divergence in performance, which can be better managed through portfolio diversification. Diversification should also be followed in selection of developers. Over-exposure to properties developed by one builder can put you in a spot if that developer gets into trouble.
Water is becoming a crucial factor in long-term value sustenance across cities. If your real estate investments or home ownership is spread across water sufficient and less deficient areas across cities, you have one risk less to worry about.
So, what if you can’t afford a house in London! At least you can learn from London to buy a home you can afford.
Former Editor, Outlook Business and Executive Editor, NDTV Profit, the writer is a personal finance expert. Mail him at propertyplus@thehindu.co.in
