Don’t Time the market, Price the market.

In the preceding two blogs, I had introduced the concept of Real Estate as an Asset Class and had outlined the basic thumb rules for making Investments in Real Estate. In this blog, I answer another important and oft asked question regarding Real Estate Investment – “Is this the right time to invest in Real Estate?”

The irony of this question is that it is most often asked by people who prefer sitting on the fence, irrespective of the prevailing sentiments in the market. They are on the fence when the market is going through a bull run (I prefer to call it the ‘speculative’ phase) and are still found happily perched on it through the lean phase, content at not having suffered any losses had they invested during the bull phase.

There is no ‘Right Time’ to invest in the market.

I am of the firm belief that there is no “right time” to invest in the market, and this asserting holds true for Real Estate Investment as well. The variables are too many and too complex for anyone to precisely predict the right time to invest in the market. Professionals, who claim to be successful at timing the market also base their decisions on fair number of assumptions, and at best are guessing the way market will behave. This makes their decisions too random and not investment worthy.

A few reasons that make it impossible to time the market are:

  • No definite Demand and Supply figures – It isn’t possible to know the exact inventory/supply available in the market at any given point. Similarly there is no way to determine, with certainty, the exact demand in the market.
  • Macro-Economic Factors – such as Political and Regulatory changes, are outside anyone’s control and as such, impossible to predict.
  • Governments also have limited control over factors that can impact prices in a major way. If it weren’t the case, Governments would first control the price of their own currency.
  • Too many unpredictable factors – such as Project delays, competitive growth, commodity fluctuations, natural disasters/calamities, terrorist attacks etc. that no one can account for while making any plausible projections.

A far superior & profitable way is to find ‘Right Product at Right Price’.

Every market has products that are selling close to their intrinsic value. In Real Estate, this happens for any or combination of reasons, such as:

  • Seller is not confident of finding buyers or is too new in the market and is yet to establish a sales network.
  • Seller is under financial pressure or is stuck in a place which is overlooked by the market.
  • Seller has suffered a bad reputation in the past, thus making him unsavoury to the market.
  • There is a temporary bias against a certain type of product.
  • The seller has approached the market when another bigger seller has captured the demand at that point of time in the market.

Understand the ‘Intrinsic Value’ of the product.

The most important thing, then, is to understand this intrinsic value of a product. Once the variation between the ‘intrinsic value’ and ‘offered price’ is found to be in a buyer’s favor, the purchase may be made irrespective of the Market Time (read sentiments).

I will explain this concept by way of an illustration in my next blog.