Taslima Nur Vila Case Study

How To Predict Real Estate Market and Identify Asset Bubbles ?

Professional Management

Lastly, Real Estate Investment Trusts are businesses that are run by well qualified professional investors. As such, they have their methodologies in place and make decisions based on them.
It is highly unlikely that the management of Real Estate Investment Trusts makes erroneous decisions regarding managing any given property. This professional management is worth a lot of money and individual investors would simply not be able to afford it and the increased cash flow that it brings to the table.
Since a lot of investors pool in money and each of them only has to pay a slice of the management fee, they can benefit from the financial and operational expertise that many of these real estate investors bring to the table.Housing prices can go up under two main scenarios:

One is when the fundamental economy of a given location has undergone a change. This means that there is somehow a better standard of living or more employment available in that area making it imperative for more people to stay there.

Or else, there could be a speculative bubble wherein investors buy at a high price today to be able to sell at an even higher price tomorrow.
The question arises as to how can one predict the markets ? How can one differentiate the realistic price rise from the bubbles ? In this article, we will make an attempt to explain some of the metrics that can allow the investors to do so.

Rental to Capital Values

One of the best ways to predict a housing bubble is to compare the rental values to the capital values. When the underlying economic fundamentals of a given property change, the rental as well as capital values change simultaneously.

However, in the event of a bubble, speculators raise the capital values expecting even more capital gain. However, the rental values do not rise because the tenants do not see a change in the value of the property. Therefore, in such markets there is a huge disparity between rental and capital values which can be considered to be the sure shot sign of a bubble.

Thus, there are various indicators in the property market that can help the diligent investor differentiate between a price rise and an asset bubble.