Author: John Amram
The high-equity actors on the professional real estate transaction market can currently be divided into two camps: one that remains on the sidelines and is not participating in any shape or form in the various transaction activities – out of fear of buying too early. The other group is made up of investors with an opportunistic orientation – prepared and ready to buy. Many of them are waiting for the absolute bargain on the market because they want the best-possible reward for their liquidity. Or to put it another way: one could be forgiven for thinking that no deal is good enough for them.
In my opinion neither of these approaches is correct. At present the market is characterised by so many – in part contrary – factors that even the most experienced of experts are unable to predict when the market will bottom out. This is also why it makes no sense to wait for a turnaround on the market. Ultimately the reversal of a trend such as this generally happens very quickly, and once all the signs point to an upswing again, the window for favourable opportunities has already been slammed quite firmly shut.
Even the “bargain hunters” are currently passing up a large number of opportunities. By waiting for a really brilliant deal they are missing out on the possibility of concluding several transactions that would provide a decent pay-off.
There is, however, another strategy – one that promises much greater success yet which many professional investors are shying away from: firmly grasping the falling knife with both hands. Those with sufficient liquidity should specifically invest in the waning market and – without any major competition – continually expand their investment volume. In the meantime the multipliers for not only residential real estate but also the majority of commercial properties have declined so much that ultimately even a decent deal in 2023 is often more lucrative than an excellent deal was in 2021.
It is self-evident that those who allocate their capital in this manner over the course of the next 24 months through regular purchases will at some point reach the spot when the market bottoms out. Yet even then the purchases should not end abruptly, but transactions should continue to be realised at the beginning of the resurgence. At the present time it would perhaps even be good for such a numbers-driven market as ours to pay a little less attention to market data and the uncertain environment, and instead focus on the fundamental data of the respective property, on its location, on the associated opportunities and risks to a much greater degree. At the moment I only see a small handful of market players with the necessary self-confidence for this course of action.
Those who start purchasing speculatively now, and stoically keep on buying when market prices fall, will – on the whole – see a good to very good performance when there is a later upswing, and will have realised a large transaction volume to boot. Exactly when this turnaround will occur is essentially dependent on the interplay between the size of interest rates and purchase prices. I assume, however, that it will take place in a phase when rates are left on hold or we even see a decline in rates again. If one believes the prognoses then this will probably be in the period from the middle of next year through to the end of the year.