Buying in a Rising Market
Further to my post last week, I’ve found another interesting section from the book Property Ladder by Sarah Beeny.
Buying in a Rising Market – A Word of Warning
‘Trading or speculating on the property market is not the same thing as property developing. It simply means buying properties and either waiting for the market to change in some way or selling the property to someone who will pay more for it than you did in the state when you bought it.
This is effectively the same as if you were a broker trading in the stock market – brokers are not doing anything to add value to the shares, they are gambling on outside forces that are driving the prices up or down. While a rising market may seem an exciting way of gaining lottery-type amount of money for doing almost nothing, it is important to be realistic about what is happening.
A slow and steady growth in property prices undoubtedly benefits everyone but a very buoyant market where property prices rise dramatically over a short period carries with it the danger of unsustainable growth and the knock-on effect of the market becoming overheated and either leveling off or actually dropping (as happened in the 1980s).
Either way there is little you can do to affect the market (unless you have the buying power of an oil tycoon). If you are making a profit on the property due to the rising market rather than actually adding value by changes you make to the property yourself, then you might as well buy a newly-modernized home that someone else had sweated blood over and enjoy living there until it is time to sell.
Your profit should always be calculated on the basis of the value of the property on the day you purchased it. This way if the market rises, so well and good, but if it does drop it will still have a long way to go before you make no profit at all. Don’t forget that as prices go up, unless you are planning on jacking it all in and spending your capital backpacking around the world (quite tempting sometimes) you will have to spend more on the next property you buy so you don’t actually gain that much in the grand scheme of things.
The only one to really gain from a rising market is the Chancellor of the Exchequer (The British Finance Minister), as the more properties cost the more stamp duty is due.’
Some sound advice there, I must say.
Some rumors saying that the economy is expected to crash again in 2009. Do you think it will create another buying opportunity by then?
Comment by Siput — July 25, 2005 @ 4:28 am
i heard other stories, some say 2007. But then again i always believe anytime is a good time to buy property. Good times you can sell higher, bad times you can buy cheaper. It depends on the type of property you looking at.
Comment by Administrator — July 25, 2005 @ 4:31 am
Sarah dish out some very good advise. No matter what the condition of the market is, as long as you are able to buy at the right price given the market condition and location, re-develop it according to your target market, complete the project within your budget and on time then you should be able to make money.
Comment by Feizal — January 14, 2007 @ 8:18 pm