Buying property in a slump, here's why and how

Buying property in a slump, here's why and how

Category Expert Insight

The economy is tanking, the property market is down, prices are down. Should you really be buying property right now? The answer is yes. Buying in a slump can yield considerable benefits.

Buy low, sell high is always the ideal when it comes to investing in property. This means that you want to buy when prices are at the lowest and sell when prices are at the highest so that you can achieve maximum profit from your investment.

When property markets slow down and stock levels increase, sellers generally become more negotiable on asking prices as they look to sacrifice some profit for a speedy sale. For investors, it is just patience that will be their reward when the market returns to stability and capital appreciation continues on an upward trend.

Here’s why you should buy property in a slump:

Prices are more advantageous.  A slump in the market has a corresponding increase in property stock. Prices become more favourable for investment as urgent sales flood the market. Purchasing when prices are low is a simple economic factor and excites investors.

More property stock to choose from. In a property boom there is usually less stock to choose from which means that buyers must compete for a limited pool of properties which drives up property prices. In a slump, sellers compete for buyers, thus driving down prices.

Property is a solid investment. Statistics show that property bests the test of time and over a 10-year period, up to 100% returns on investment can be achieved, significantly more attractive than most other asset classes including the stock market.

Property is not a volatile asset class. Property has a relatively low correlation to stock market volatility making it a reliable option in a market slump. Where stock values can plummet and investors can lose their money during a slump, except for extreme circumstances, property generally always retains its underlying capital value.

Property can be leveraged for income. If you are unable to pay your bond, you can always rent your property out. You can also invest in a property for the rental market. In the long-term, property rentals offer stable income streams, generally on an upward trend year-on-year. Long-term property prices are generally less sensitive to volatility thus outperforming most stock market sectors over the long term.

Here's what you should look out for when buying property in a slump:

Make sure you can afford it. If you are in a strong financial position, a slump may provide the opportunity to buy a property that you might not otherwise be able to afford, but be sure to consider what might happen if your financial position deteriorates.

Interest rate fluctuation. During a slump you may find interest rates to be low such as the current case. Bear in mind that these rates will rise again so you need to factor these in when you buy. Don’t be fooled into thinking you can afford more than what you can afford.

Negotiate well. During a slump you are likely to find that sellers are willing to drop their price, but guard against the temptation to bargain hunt. You might be disappointed to find that while asking prices may decline, it is seldom a “blood bath”.

Inspect the property before you buy. Desperate sellers may well look to cover up maintenance or structural damage, so be sure to check the property before you buy, especially if it is a bank foreclosure or there were tenants in the property.

Be careful of a fixer upper. Even at a bargain price, a fixer upper can become somewhat of a nightmare if you are not familiar with renovations and the associated costs. If you are a novice, rather look for a property which does not need drastic work.

Author: Gina Meintjes