Recession Proof Property - JUNE 2018
By Rich Harvey, CEO & Founder propertybuyer.com.au
It’s the Holy Grail of real estate. A property holding that refuses to retract in value despite collective market forces trying to drag it down.
Recession proof property is out there, but it takes a keen eye and years of experience to spot and secure an investment with the resilience to ride out the tough times.
Here are my tips on locating top-notch investments so you can lock down holdings sure to stay the course when all around them is falling.
What is recession proof property?
Put simply, recession proof property has the important fundamental attributes needed to mitigate the risk of a softening market.
It‘s the sort of property that buyers acquire with confidence because they know there’ll be a reasonable level of demand when it comes time to sell regardless of how a sector or location is performing.
Those who’ve bought in softening markets can attest to the worth of having recession proof property in their portfolio.
The machinery that makes property recession proof involves the principles of supply, demand and price elasticity.
Think about how Economics 101 works. The higher the demand, the more expensive a good, service or asset is (given supply is fixed).
The way recession-proof property works is this; that there are a certain numbers of buyers in a particular market looking to purchase a set number of properties listed for sale and buyers will start to filter out those properties that hold little appeal. Certain attributes (or lack of them) will remove a percentage of buyers from the potential pool. The more positive attributes a property has, the larger the group of buyers willing to consider it.
For example, most buyers would be happy to acquire a home with view, but a large percentage will disregard anything with a main road frontage.
As the potential buyer base shrinks, so too does the competition to own that home so the price is susceptible to falling more dramatically in a poor market.
What are the magic fundamentals?
There are a number of attributes that help shore up a property’s value so it can survive a general downturn. My Top 20 Investment Criteria eBook gives an overview of the metrics and facets that help identify quality holdings, but there are a few basics that will set you in the right direction as well. I studied Economics for many years and graduated with a Masters in Economics, and while the economy has changed remarkably over the last three decades, I have learned how to interpret and analyse both “Micro” and “Macro” factors which impact property markets. There is no ONE factor that dominates the property market (although interest rates come close) but it is driven by the complex interaction of localised drivers (think schools, shops, transport, streetscape, council planning policy, infrastructure etc) and broader macro factors (think wages, consumer sentiment, immigration and population growth, inflation etc).
Location is the great constant among real estate. It’s the one truism everyone understands.