As the name suggests, the secondary market in real estate refers to the resale of existing properties and established residential areas.
The secondary market functions as a way to open the door for a change in proprietorship at the suitable rate of an existing property. This implies that the secondary market becomes significant as it provides the liquidity needed to strengthen the functioning of the primary market further.
Moreover, people outside the industry tend to believe that the primary market or fresh properties end up making more sales. However, the reality is quite contrary.
The secondary real estate market is responsible for a bulk of transactions in residential real estate. The primary reason is that the secondary market gives you more choices in well-known localities.
This is mainly because the secondary real estate market offers more options in established locations. Here’s a list illustrating the pros and cons of primary and secondary markets.
In this blog, Graana.com, Pakistan’s smartest property portal, gives you a complete guide on what is a secondary market in real estate.
What Makes Secondary Market in Real Estate a Better Place to Invest?
For obvious reasons, real estate investors are usually more willing to invest in primary real estate markets, as the market has a relatively more stable rental demand due to the high population as well as high liquidity.
However, if you are new to this field and are looking for the best opportunities to invest in real estate, the primary market might not be the ideal place for you.
They are not only enormously expensive but also extremely competitive and unstable in recession.
Following are some of the reasons why an investor might prefer investing in a secondary property market in the matter of long-term rental properties.
- Low Competition
- Potentially Higher Profit
- Higher Growth Rate of Population
- Relatively Stable During Recession
Affordability is one of the major factors that shape your decision of investing in a certain niche. When it comes to investing in real estate, secondary property proves to be a more reasonable option in most cases.
If you have a tight budget, you might want to consider investing in the secondary real estate, as it will require low initial investment.
Owing to their low-budget requirements, beginner investors looking for low initial investment options should be looking for these markets.
As the general perception leans towards primary markets, a considerable number of people with sizable capital always opt for properties in this market.
Due to this fact, a secondary market becomes a more feasible option for a new investor, as the competition will be low.
Potentially Higher Profit
Secondary properties generally tend to yield more cash and high capital when they are put on rent through the traditional way as compared to the ones in primary markets.
This is because the properties are not overvalued, which helps yield high returns.
Even though the primary property can secure more rents, the fierce competition from deep-pocketed investors raises the property prices enormously, resulting in high price-to-rent ratio and lower return on investment (ROI).
Higher Growth Rate of Population
In addition to other factors, the secondary real estate market is more willing to have a high job growth with lower living costs as compared to primary markets.
This represents itself in the form of high population growth rate, which eventually results in higher property prices.
Relatively Stable During Recession
It has been recorded that the secondary real estate markets are usually more stable during recession, which is the reason why long-term investors get attracted to the markets. Back in the year 2020 when the coronavirus plague hit, primary markets crashed, while the secondary real estate market experienced growth.
Due to the covid SOPs, locals and workers are looking for residential units in the secondary market, which are less expensive. There is a more chance of virus to spread rapidly in big cities, because of the population density the incessant use of public transportation.
Remote work, the closing of various urban services, social spacing, and people looking for less expensive residential units have all added to the primary real estate markets’ notable crash.
What Is Secondary Market in Real Estate | Pros & Cons
Now that we have discussed at length what the secondary market is and how it works, let’s talk about its pros and cons.
Some of the pros and cons are listed below.
- Immediate rental return
- Established location
- Old design
- Repair / Maintenance
- Price increase
This was all about secondary markets in real estate. For more information, visit Graana blog.