TIME TO GET GREEDY?

Warren Buffet, The Sage of Omaha, has made himself the world's richest man by investing in the right commodity at the right time. It is said that every long term shareholder in his company Berkshire Hathaway is a millionaire thanks to his genius. Each year they celebrate their good fortune at the company's annual conference by watching the great man play his ukulele, something else he is known to be good at.

This is what Buffet said about the US housing market at its peak in 2006 - “We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments...Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it.”

He certainly got that right. Since he spoke those words property prices in one country after another have fallen sharply, starting with the United States and Ireland in 2007, joined by Britain, Spain and others in 2008, and, if the pundits are correct, Dubai and many more in 2009. From Chicago in the United States to Shenzhen in China, the downturn is truly global. With recession spreading, unemployment rising and mortgage lending reduced to a trickle, the omens look bad for property markets in 2009. Many are destined to crumble.

So, with this in mind, now may be a good time to consider some of the great man's other words of wisdom to see whether they can point a way out of this mess.

A recent comment by Buffet following his purchase of a chunk of Goldman Sachs bank in autumn 2008 is revealing. Bluntly, he believes now is the time to buy, buy, buy. “The time to get greedy is when others are fearful” he says. He was referring to stocks and shares, but this maxim could hold true for property. Most of the world's property markets are consumed with fear, but they will bounce back eventually. For property buyers who get greedy now, this may be a year to remember.

Prospective buyers may want to focus on property markets which hold their value best during a slump.

Buffet again - “Look after the downside and the upside will look after itself.”

Nick Barnes, research partner at international estate agency, Knight Frank, says property markets at the heart of the global economy, like London, New York, Paris, Singapore and Hong Kong will survive the global economic crisis best.

“We are definitely seeing a flight to quality,” he says, “We will go to the thing that is most resistant to recession. In London and New York values are down, but prices are looking cheap now.”

Rebecca Gill research associate at international estate agency, Savills, says the top end of the world's property market - homes valued at £1.5 million or more - is well placed to come out smelling of roses, even in countries like Spain which is hard hit by the downturn.

“Exclusive areas have limited supply and for that reason they won't see the drop in prices other areas might do,” she says, “there are still people out there with cash taking the opportunity to buy.”

Barnes says there is $1 trillion of private equity looking for a safe haven from the financial turmoil. Much of it will end up in property he considers, though this won't trigger an overnight upturn in sales prices.

“There won't be a huge v-shaped bounce-back, because we are a long way from sorting out the banking crisis,” he says, “there will be banks that need capitalisation and re-capitalisation, and the banks will be more prudent and will want to be seen as prudent.”

So buyers need to patient. As Buffet says “Only buy something that you'd be perfectly happy to hold if the market shut down for ten years...Our favourite holding period is forever.”
Buy that house of your dreams it could make you rich.