When to fold and when to hold

[always_learning]

I was talking with a friend who is a senior employee of a large asian development group (also in OZ).

They only build residential developments when there are large % of owner occupiers buying. They carefully monitor who is buying, if people are buying OTP then flipping, lots of investors buying then they stop developing new projects...it is a sure sign that things are getting crazy.

For example prices in Shanghai have gone thru the roof recently, but their analysis show that demand is from owner occupiers, ie the boom is supported by the fact people can afford to pay more, it is not a speculative mania, thus whilst the sun shines they will continue to make hay.

Dare I suggest a law of real estate:

"You can not go wrong buying real estate at the realistic prices that owner occupiers are paying"?

or maybe modification of Jakks quote

"Buy as much as you can at prices owner occupiers are paying, as fast as you can and hold it as long as you can"

What do you all think...dumber and dumberer or realistic?

 

[Jas]

I think that works for developemtns, but I'm not so sure that it holds true for investors as well.

Perhaps when investors start gong crazy, it's defienetaly a warning sign, but developers have 2 - 3 yrs lead time. Investors don't.

Jas

 

[Tibor]

AL,

While I see the point you are making, I rather tend to agree with Jas. One thing is sure property price fall will not effect OOs so much as investors. It is their HOME, so the ROI is not the primary concern.

But I tend to agree that in suburbs with high OO rate returns tend to be better as OOs will spend more on the property than investors (Steve's view and I agree with it) as it provides them with the comfort or caters for needs or just to keep up with the Jones.

Also developers (usually smart bunch) prefer high rise with low land contents as this is how they can maximise their profits per sqm and sell the same land at a much higher price that if it is only a single level dwelling. Majority of investors will not be able to afford it (development of high rise so they can maximise their profits) so they have to rely on the ripple effect on the per sqm increase both on land value as well as in building cost.

Just an opinion.


Tibor

Tibor