October 5, 2022
What is a Bear Market in Real Estate & How Should Investors Leverage it?
If you have an academic background in finance or are working in the finance sector, chances are you are already aware of the terms “Bull Market” and “Bear Market”. Anyone can obtain surface-level knowledge of both from books and the internet.
But if you are a real estate investor in the UAE, surface-level knowledge would not be enough to make enforced or wise decisions. To maximize the potential of your investment, you must know certain indicators that show you when each of those things is happening.
GJ Properties’s highly experienced team assists investors to invest in Ajman properties safely. Thus, we have a thorough understanding of both conditions. Today’s blog will clarify the meaning of bear and bull market, differentiate the two terms, and illustrate why the bear market is a great time to invest in real estate.
Origins of Both Terms
The terms “bear” and “bull” originate from how each animal attacks its adversaries. A bull will raise its horns into the air, but a bear will swipe down. These behaviors were then figuratively linked to market movement. Moreover, “bear” and “bull” are commonly used to define the overall actions, attitudes, or emotions of a particular property or market. Investors use the terms “bearish” and “bullish” to express their market sentiment toward specific securities or financial needs.
A bear and bull market are widely used to characterize a stock market. When stock prices rise, it is referred to as a bull market; when stock prices fall, it is considered a bear market. A variety of economic factors typically influence the stock market such as economic and social conditions, an economy’s power, employment levels, etc. These elements reflect whether a market is entering a bull or bear market.
When a market shifts from a bear market to a bull market, it indicates that the economy is attempting to stimulate an increase in stock values. This necessitates increasing the employment rate, boosting the economy, and demonstrating favorable social and economic conditions. This will boost investor trust and motivate them to invest in the stock market, causing stock prices to rise.
Investors will be drawn in by favorable economic conditions. The government can provide incentives to investors to encourage them to put money in the stock market, resulting in a bull market. Furthermore, investing in new companies and technologies will entice investors to participate in the stock market. For example, the dot-com boom of the 1990s instilled optimism in investors.
Increased employment levels will boost the economy and benefit the stock market. However, stock prices might fall due to sudden unemployment or instability caused by events such as war.
As a result, such risks should be considered when attempting to convert a bear market. These elements are crucial because if a price increase is started, the economy will maintain the rising prices, resulting in a bull market.
The Most Recent Real Estate Bear Market:
Probably one of the most recent declines in real estate values occurred in the aftermath of the global financial crisis of 2007-2009 and the subsequent Great Recession. An increase in residential property values triggered the collapse. Mortgage companies drastically decreased application requirements and engaged in frenetic mortgage securitization, resulting in a global contagion when house values stopped growing, and borrowers began falling. Commercial real estate was affected as a result of the crash.
In 2009 and 2010, the unemployment rate jumped, reducing demand for office space. In addition, consumer balance sheets deteriorated, which declined demand for retail real estate. The bearish conditions resulted in a drop in commercial real estate values and a wave of commercial mortgage foreclosures.
However, commercial real estate has considerably risen during the last decade. Apartments, distribution space, grocery-anchored retail, and self-storage have all seen strong demand. A few property types, such as offices, shopping malls, and hotels, suffered during the start of the COVID-19 epidemic. However, they also avoided the devastating decline that hit the broader commercial real estate market during the Great Recession.
The Best Real Estate Strategies to Invest in Bear Market:
Buying the dip in the real estate
Buying a freehold property for sale and renting it can be an excellent long-term investment. You will enjoy a consistent and steady income, and growth as real estate value rises.
Also, purchasing property at a lower price enhances the possibility of a higher return on investment (ROI), increasing cash flow and flexibility for future rental rate variations, vacancies, or additional expenses. A real estate downturn should be viewed as a shopping frenzy.
Keep in mind that lending generally slows during downturns, making it more difficult to obtain financing for a rental property. Consequently, it’s crucial to have sufficient liquidity to take advantage of these market advantages.
Real estate investment trusts (REITs) were first created to provide regular investors with access to institutional-quality assets such as multifamily housing, self-storage facilities, retail shopping centers, office buildings, and a multitude of others that are typically out of reach. With over 200 publicly-traded REITs, they are an excellent option for investors to obtain broader exposure to the real estate market without owning or managing the physical property – and at a fraction of the cost.
Despite the fact that the overall market remains in the correction zone, numerous REITs are in bear domain, down 20% to 40% or more from the latest highs. This means that now is an ideal time to stock up on dividend-paying investments.
Furthermore, dividend yields rise when share prices fall. Thus, by buying shares at a reduced price, you’re raising your profit both now and, in the future, thanks to the power of percentage growth over time.
Purchasing high-growth real estate stocks
REITs and rental properties aren’t the only methods to benefit from IN BARE MARKET. High-growth real estate stocks, frequently linked to the real estate brokerage or technology sectors, might be another way to obtain real estate exposure and take advantage of advantageous pricing.
While there is always the possibility that these investments may not pay off as expected, purchasing shares at rock-bottom prices boosts your chances of a fantastic return if it takes off.
Real estate bear markets do not persist indefinitely; values eventually recover and frequently exceed pre-bear market highs. If you don’t seize the opportunity, it will pass you by.
To conclude, while market movements are frequently visible, distinguishing between a bull and bear market can be challenging. You must monitor every indicator to determine which market you’re investing in. While bull and bear market methods can differ, it’s also crucial to note that bull markets tend to remain longer than bear markets and that markets frequently gain value at the end of bear markets.
Invest in growth during bull markets and solid investments during imperfect markets, but keep in mind that the situation can always change. Therefore, it is acceptable to be flexible in your investment planning.