Saturday, September 24, 2005

Real Estate is Yesterday's Asset Class

This article is slanted towards the concerns of readers in oil producing nations, but it is a nice summary nonetheless -- real estate is yesterday's asset class. (Not here in Marin of course; we're special after all.) The article also ties in with the previous entertaining thread concerning what is the proper measure of the "value" of a property.

Some choice quotes:
"In the mid-1970s a global real estate bubble burst under the pressure of high oil prices and rising interest rates. Are we about to see the same thing happen again in the oil consuming nations?"

"This is not an original thesis. 'The Economist' magazine has been banging on for the best part of a year about the extent of overvaluation in global real estate markets."

"Lest we forget, global rental yields on property have fallen to record lows on the back of a long period of low interest rates. For yields to recover to normal levels either rents have to surge or property prices must fall. Given the pressures on consumer spending right now, an adjustment through real estate prices looks far more likely."

"Global real estate in the past few years has acquired all the characteristics of a classic investment bubble. For a start everyone has done well, even the dimmest investor is showing a profit; and any person that you meet will tell you that you can not loose on property, especially those with zero expertise. This is surely the classic sign of an investment boom at the top of the cycle: universal optimism."

"What people forget is that the very forces that have driven property prices to levels way beyond that justified by rental yield - which is the only true measure of value in property - also work in reverse. You get an upward spiral in property prices, and a downward spiral in property prices."

"The UK property scene, for example, is in a state of denial. The fact is, pure and simple if you want to sell a property today you will need to knock 15-20% off your imagined peak price. Otherwise, you will not get a single buyer - and indeed that is why many would be sellers report waiting months without a single enquiry."

"From the perspective of 'The Economist' it is obvious that a long period of abnormally low interest rates has gradually puffed up a house price bubble of historic proportions. Indeed, this almost certainly is the biggest investment bubble in history."

"The rational investor in oil consumer countries would sell, if possible."


Post a Comment

<< Home

Terms of Use: The purpose of the Marin Real Estate Bubble weblog (located at URL and henceforth referred to as “MREB” or “this site”) is to present and discuss information relating to real estate and the real estate industry in general (locally, state-wide, nationally, and internationally) as it pertains to the thesis that recent real estate related activity is properly characterized as a “speculative mania” or a “bubble”. MREB is a non-profit, community site that depends on community participation and feedback. While MREB administrators do strive to confirm all information presented here and qualify all doubtful items, the information presented at MREB is neither definitive nor should it be construed as professional advice. All information published on MREB is provided “as is” without warranty of any kind and the administrators of this site shall not be liable for any direct or indirect damages arising out of use of this site. This site is moderated by MREB administrators and the MREB administrators reserve the right to edit, remove, or refuse postings that are off-topic, defamatory, libelous, offensive, or otherwise deemed inappropriate by MREB administrators. You should consult a finance professional before making any decisions based on information found on this site.

The contributors to this site may, from time to time, hold short (or long) positions in mentioned and related companies.