Cash-out or Carry-on?

Real estate investment market has been shock-frozen

As a result, the real estate investment market has been shock-frozen since the middle of last year as well. Potential buyers are pricing the “new normal” into their calculations on the basis of current financing terms and rates of return. Sellers who as recently as 2021 may have bought at prices that seem inflated now but seemed realistic at the time, yearn for the former market price level. They are reluctant to count their losses. Unless they are under pressure to sell, they do not seek to dispose of their assets just yet.

Real estate is periodically re-appraised. And the new price level is reflected in the latest appraisals. That said, the latter proceed in the absence of transaction-based benchmark values from the market. But given the changed basic parameters, it is clear that property values dating back to the peak market cycle are no longer fully justifiable. The baseline situation is rather complex for appraisers and the owners of the appraised properties, and it is subject to much debate.

No one likes to see their assets marked down. But generally speaking, you may wonder: Are devaluations necessarily bad news? Well, it depends not least on your investment strategy. If you are planning in investment cycles and seek to sell when prices are at a premium, today’s changed market environment will remain unfavorable for years to come. Selling in late 2021 or in early 2022 would have been the right thing to do. This is clearly evident from the development of the price-to-rent ratios in regard to the prime net initial yields for selected asset classes. But there had been no signs suggesting an end to the latest super-cycle, and when it did come, it came as a surprise, with many players having almost forgotten about the cyclic nature of the real estate market. In this case, it was easy to miss the perfect time to sell.