Property forecasts and self-fulfilling prophecies
Due to the enormous amount of money invested in worldwide real estate it is no surprise to learn that there are new property forecasts released each and every day. We have some of the best names in the industry, we have some newcomers to the sector and we have influential individuals waxing lyrical about the sector. However, the vast majority of property forecasts seek to pre-empt a change in the market and prompt the question, can they become self-fulfilling prophecies?
You may think that any one individual or any one company has little or no impact upon the marketplace but if you put a number of voices and a number of opinions together, what happens?
Talk can be expensive!
If you closed your eyes and stuck a pin in a map of the world we guarantee that you would hit a country which has a property market driven by experts and influential individuals. Do you believe us?
Quote from PropertyForum.com : “Are international investors taking advantage of toxic bank assets?“
One prime example of the last 20 years is the Dubai property market which was nowhere near the investment list of real estate experts until the turn-of-the-century. As we have seen on numerous occasions, real estate investors are always looking for the next big market, the next big move and they are more than happy to jump in, jump out, take a profit and let everybody else suffer the consequences. So what happened in the Dubai property market to validate our opinion that property forecasts can become self-fulfilling prophecies?
The rise and fall of Dubai
Once the Dubai market began to pick up, this immediately registered on the investment radar of individuals and companies who had shown no interest previously. The market was opened up to international investors, it seemed as though the local authorities were very keen to attract overseas funds although many experts spotted that there was a reluctance or possibly an inability to regulate the market at that time.
As a consequence, Dubai became a free for all with property experts forecasting growth year-on-year and many labelling the Dubai real estate market as a “safe haven”. Property prices pushed to record levels, rents began to stretch even the affluent market but property speculators continued to pour into the region. This rise was supported by ever more positive forecasts for the short to medium term and indeed predictions that Dubai would become a major market for the long-term.
Dubai ignored the worldwide economic downturn
When the US mortgage crisis began to develop in 2007/8 some of the more sensible heads in the worldwide real estate market began to show concerns about the state of the Dubai real estate market. However, many of the so-called “experts” began to promote the myth that Dubai was to all intents and purposes a one-off and a “safe haven” during these difficult times.
When you bear in mind that some of these so-called experts were in charge of billions upon billions of dollars of funds looking for property investment, this became a self-fulfilling prophecy. Even when the worldwide market began to collapse, the Euro crisis became a reality and some international investors began to talk of repatriating funds, the rise and rise of Dubai property continued. Then, all of a sudden we saw a trickle of property research notes suggesting the market was overvalued, the worldwide credit crunch would indeed impact Dubai and the banking system was in crisis. Bang!
Last one-out switch off the light
It seems that once the worldwide real estate market had enough of Dubai, and its apparent “safe haven” status, the market was in trouble. The trickle of overseas investors looking to repatriate their funds soon became a tidal wave, the emergence of negative comment on the Dubai real estate market continued to grow and the authorities were left wanting. Critics have suggested that this market was manipulated so that influential real estate investors were able to maximise their returns and bail out before the collapse. But is this correct?
The reality is that markets, whether stock markets, property markets, etc do depend upon sentiment, investor attitudes and indeed the voice of influential companies and individuals. Just because the industry as a whole is forecasting an ever more prosperous real estate market does not mean this will continue for ever, it can prolong any downturn, it can blinker investors and it has been shown to lead to a self-fulfilling prophecy. Human nature dictates that we are greedy, we want to squeeze out the last buck from our investments and once the exit doors open, and it is becoming crowded, we rush to cash in our chips!
Conclusion
The reality is that the components of the worldwide real estate market can create their own self-fulfilling prophecies but these will never last forever. If you look at any investment market, real estate market, etc and it looks overvalued then be very careful about investing. If you’re not comfortable, if you have concerns then do not become one of the lemmings looking to jump over the cliff because when you finally see the light and decide to move for the exit door, you may find it is particularly crowded.
Do your own research, have your own strategy and stick to it……history shows us that the big winners in the investment arena are those who look long-term as opposed to taking short-term punts. Learn from your own experiences……and never forget.