Oversupply Puts Power in the Hands of Property Buyers

As the property markets around the world begin to reassemble themselves following a long period of turbulence and uncertainty, a number of commentators are predicting happier times as we head into the latter stages of 2010....

As the property markets around the world begin to reassemble themselves following a long period of turbulence and uncertainty, a number of commentators are predicting happier times as we head into the latter stages of 2010.

But with a number of prominent countries still experiencing declines in property values and a surplus of real estate constantly filtering its way onto the market, it could be argued that there are now an increasing number of property investment opportunities for canny individuals.

This week saw property consultants Cluttons release their latest report into the state of the market in Dubai, with the company claiming that potential purchasers are likely to find themselves in a favourable negotiating position when it comes to buying property in the region.

"Ongoing price reductions have opened up the Dubai property market for a wider selection of potential purchasers, who are becoming increasingly discerning in their property search," Steve Morgan, head of Cluttons UAE, said.

"Whereas once the landlord or seller held a strong position, we now see buyers negotiating with landlords to bring prices well below the asking price."

Furthermore, the majority of real estate sectors in the region are witnessing a short-term oversupply, which has led to a reduction in capital values and rents as occupiers seek to take advantage of favourable lease terms.

Rather than being a one-off occurrence, it would seem that this is reflective of the global market as a whole, with a number of markets seeing a return of buyers.

Entering into a buyer's market sounds ideal - lots of properties to choose from and being in a position to make offers below the asking price - making a very real chance of bagging a bargain.

Buyers Becoming More Demanding

When prices are low, buyers become more savvy and much more demanding when it comes to buying property.

And increases to things like interest rates in various countries only serve to make property investors and purchasers even more determined to negotiate on prices.

Nicholas Fullerton, director at currency broker FC Exchange, told Money Week that current prices in a number of countries highlighted the accessibility of the market.

"You only have to look at the US and Spain to see how much [house] prices have come down," Mr Fullerton said.

"It's a buyer's market, which means the supply of properties far outweighs demand and good deals can be had if you are willing to negotiate."

The recent Colliers International Report suggested that eastern European destinations such as Bulgaria are benefiting from falls in home values and surplus supply.

It claimed that the three major factors supporting the buyer's market are the large variety of offers being made, the flexibility of investors and favourable bank mortgage terms available in the country.

Phil Spencer of Location, Location, Location fame and chief executive of property search consultancy Garrington, told the Guardian that the most important tool that potential investors could bring to the negotiating table was a knowledge of the investment property market.

When a property market is very fast moving it is hard to find up-to-date and relevant prices, he explained, but once it starts to stabilise buyers can look at prices over the last two months and make a more informed decision about what they should be paying.

What This Means for Property Investment

If the transfer of power back into the hands of the buyer has any immediate impact on the market it will be to increase the number of people looking to take advantage of opportunities for bargain real estate investments in various worldwide destinations.

However, while low house prices are great news for buyers, those looking to sell property may find themselves in a no-win situation, with the worry that they will be forced to sell their assets at a loss.

Speaking to the New Zealand-based Marlborough Express, Mark Davies, Harcourts Marlborough principal, said that sellers needed to consider whether it was worth leaving their properties up for sale in these market conditions.

"It's giving buyers too much opportunity to not commit [to a sale]," he told the news provider.

Adding to that, while good houses in good locations are likely to sell well, average properties will find the task a lot more difficult, with oversupply meaning that buyers are presented with a lot more choice.

With investors able to benefit from an increasing amount of choice for quality real estate, it is likely that the global markets will continue on their paths to recovery and as more potential buyers return they will begin their ascent back to strength.ADNFCR-3415-ID-19878523-ADNFCR

- Monday 12 July 2010

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