By +Eric Jafari
I am frequently surprised that historians are not better
investors. History does have a tendency of repeating
itself - especially when it comes to money. During previous
market downturns such as the Wall Street Crash in 1929, the
Japanese asset bubble in 1980, and the credit crisis
in 2008, there is one repeating pattern: wealth has always
accrued in the pockets of those that are disciplined enough to
embrace the Warren Buffett principle that profit is generated by
the purchase price, not the sell.
Is it as simple as blindly placing your capital into anything,
and as the cliché goes, "a rising tide lifts all boats" when the
market eventually recovers? Unfortunately not.
Two drivers are influencing current market conditions: first, is
flight to safety: investors are flocking to perceived safe havens,
such as residential/commercial properties in London. This means
that London opportunities are currently not being sold on a
historically discounted basis.
Secondly, lack of liquidity: developers/borrowers are unable to
obtain debt at high loan to values.
Natural market forces within specific asset classes and sectors
continue to increase demand and yet supply remains unchanged. The
lack of liquidity is a common trend among all and thus those with
the liquidity are able to capture market share. Outside of London
(in certain regions) and in many cases within non-prime London,
there are shortages in supply for student housing, serviced
apartments and residences and yet, due to the lack of debt,
developers are unable to deliver the required additional
This phenomenon forces developers to identify alternative methods of
obtaining finance to accommodate the supply gap. Consequently,
investors who take the time to identify asset classes and markets
housing the largest supply gaps are able to financially benefit.
They can either self-develop within these markets (which requires
development experience), partner with or lend to cash-starved
developers on favourable terms previously unavailable during the
property boom. During the boom, developers and borrowers used to
call the shots. The tables have now turned.
21 August 2012
Wall Street Crash,Japanese Asset Bubble,Credit Crisis,Flight to Safety,Developer Financing