In Investors’ Chronicle today, expert Mitchell Labiak compares the price of REITs (Real Estate Investment Trusts) with the price of beer – “For both pints and property, a general price shift, upwards in the case of pint inflation or downwards in the case of property value, has increased price variation. The upshot is the increased likelihood that the market has mispriced many beers and properties alike.”
Imagine you’re in a pub and you find out that the price of your favourite beer has shot up. That’s because inflation has made many things more expensive. But here’s where it gets interesting: not every pub is charging the same. Some pubs in London might have a pint for a whopping £7.45, while others charge only £1.71. This big difference in pricing is larger than ever before.
Now, think of this beer pricing situation like the property market.
- The Situation with Commercial Property: Just like beer, there’s a wide variety in property prices. Some properties, especially those not in the best locations, are selling for much less than their worth a year ago. But the prime properties, like those in London’s West End, are fetching huge prices.
- The Residential Property Scene: Even though property prices have generally fallen, luxury homes are doing well. That’s because rich buyers, who don’t need to borrow money, are still buying. In fact, expensive homes above £5 million in London are selling even better than usual, while average house prices fall.
- What This Means: Just like the pint in the pub, property prices vary a lot. Sometimes, the market gets the pricing wrong for both beer and houses. For beer drinkers, this isn’t great news because once you buy an expensive pint, you’re stuck with it (and you can’t resell a half-drunk beer!). But for property investors, this is an opportunity. They can buy properties that are priced too low and later sell them at a profit.
In Conclusion: Next time you’re sipping on a pint, remember: just like there are beer bargains and rip-offs, there are property deals and duds out there. So, if you’re thinking about investing in property, now might be a good time to look for a bargain!