Real estate doesn’t work without a market.
Whether you want to buy, sell, lease, or invest in property, you’ll need insights from the real estate market to guide your decision. That shows you the demand and supply factors – and the many facts influencing these mighty forces. But which real estate market should you study? There’s no wrong answer.
Depending on your investment goals, you’ll need to know the different market types and how each operates. Armed with that knowledge, you can make smarter real estate investment decisions.
Facts about real estate markets
Real estate markets can be misleading
Real estate markets can skew one (wrong) way or another. You’ll be right to question some deals closing and why some properties on the market haven’t moved an inch in ages.
Sometimes, you know it has nothing to do with the property – the price is perfect, marketing is exceptional. But the market just comes down hard on your property. Don’t panic and act in frustration.
Property markets can be reactionary
Real estate doesn’t operate in isolation. And the real estate market follows suit. Real estate depends on many other sectors – finance and construction are two prime examples.
When there are changes in these sectors, the real estate market reacts. For example, if lending costs rise, the market can contract, as fewer deals will close. It’s no surprise, given how expensive real estate transactions are.
Property markets work in cycles
Peaks, valleys, rebounds. Growth, contraction, stagnation. As sure as night follows the day, you can’t do away with these phases of the average property market.
They are bound to happen. Before investing in any market, learn which stage the market is currently experiencing. That way, when change occurs, you’ll be less surprised. With these facts about real estate markets, let’s look at the real estate market types available.
Three types of real estate markets
Specific property market
Markets can form around property type or user type.
For example, we can have a market for grade-A office spaces. Or one for retail properties. Or the rental property market. These markets form naturally as the various uses emerge.
Some of these markets may have strong ties to other property types, expanding or contracting, given what happens in other markets. Other specific property markets remain less sensitive to events in other markets.
For example, when there’s a strong sales market, the rental property market suffers a bit. Attractive mortgage interest rates could tempt people into buying rather than renting.
When dealing with a specific property market, the scope can extend beyond a neighborhood into a city. However, the emphasis is strictly on the “specific property” type. With this understanding, we can identify the rental housing market in Accra, the grade-A office market in London, etc.
You can compare trends in different areas that make up the overall market. But you can also go super specific and restrict things to a specific location. However, there may be little information or a benchmark against which to compare similar property markets.
The local real estate market
The local real estate market encompasses a broader spectrum of properties but covers only a neighborhood.
Whereas the specific property market addressed specific properties like rental properties or retail real estate, the location real estate market encompasses every property type in a location under review.
So we can talk about the local property market in Cantonments, Accra, encompassing the residential, commercial, and institutional real estate types.
Some experts broaden the range of local real estate markets beyond neighborhoods to an entire city. Of course, this will depend on the size of the city – and the size of activity on the market.
Before you invest in a local real estate market, it helps to check the trends and relationships between the various property types in the market.
That’ll help you see the size of your intended investment type and where it sits relative to the others.
General real estate market
The general real estate market has a much broader scope. It can cover a scale as wide as a national – or even continental – as well as all real estate classes in these areas.
For example, we can highlight the South Asian real estate market. For many institutional investors, the general real estate market holds immense power in determining which way to invest.
Dealing with general real estate markets gives you lots of information about the many nuances in the property market. But that’s a double-edged sword.
You could end up with less relevant information than you need for your decision. And if you’re not careful, you’ll put undue attention on aspects of the market that have little bearing on your desired investment decisions and outcomes.
Thus, put things into the proper context to get the best picture of what you’re working with.
Players in real estate markets
The different types of real estate markets serve many players, including property agents and brokers, lenders, developers, legislators, planners, and individual and institutional investors.
And we can’t overlook marketers and the various end users (individuals and businesses). It’s hard to exclude anyone from the activities of real estate markets. We’re all players – directly and indirectly.
Which market is the most relevant for you as an investor
It depends. The level of investment you intend to make, plus your goals, will determine which real estate market to focus the most attention. You’ll need a broad overview of the general real estate market, then get closer to the local real estate market before you zoom in on the specific property market.
That’s part of what it’ll take you to be a more informed, savvier real estate investor.