Which One to Sell, Buy, or Wait?
Real Estate Analysis Limited
Friends, clients, and
investors have been pondering the various real estate markets
and investment strategies given the continued unfolding of the sub-prime
crisis. While it is already a tough task to just analyze markets, it is a
tougher task to make market calls. Nonetheless, on a part-analytical and
part-intuitive and part-common sense basis, here we go:
real estate market
= watch it with a view to sell, especially if prices do go up the
30%, 40%, 50% etc predicted by some market experts. Stating the obvious,
selling may not apply or is beneficial to individual circumstances, for
instance, those who are not IN the market (unless one is to short the market
via real estate derivatives which up to this moment do not commonly exist).
In any event, even if all existing property owners decide to sell, not all
properties could be listed in one go. Some factors need to be monitored in
particular the liquidity situation and the US$ exchange rate.
estate market =
watch it with a view to buy but NOT now, as prices appear to be on a
downward path still and that the US$ has yet to stabilize. What price level
would be a good entry point? This is hard to say but purely on a speculative
and intuitive basis, let¡¦s say when general real estate prices in real terms
have dropped by some 50% (or more). Why 50%? There are a few reasons, one of
which is that on a barter basis, i.e. how many or much other stuff a typical
American home could buy or be exchanged for, the US home has seen this
bartering power gone up since the late 1990s to twice the normal level
during 1890s to mid 1990s 100 year interval. What goes up will come down and
if prices were to go back to the observed ¡¥normal¡¦, that will mean a 50% or
so from the peaks in recent years.
estate market =
investment patience is required now as prices on the whole are in the
upper curves of the cycles though overall they do not appear to be
dangerously overpriced (yet market over-reaction cannot be ruled out). Using
a dice-throwing mentality, an investment timeframe shorter than 3 years is
risky and nominal losses are quite possible, a timeframe of around 5 years
is less risky and some nominal gains are likely, and a 10-year or so
investment patience is likely to reward the investor with very handsome
gains provided good investment picks. The foregoing is in part based on
market patterns-experiences seen elsewhere (before).
As to whether investing in
all 3 markets will lower certain investment risks,
the short answer is NO IF one takes into account the price correlations
between them during the past 5 years, i.e. they have been going up and down
more or less hand in hand in recent times.
However, when the
correlation period is dated back to 1994, only the USA and China markets
appear to have some relationship between them, Hong Kong does not.
Perhaps the reader may care
to review these charts:
The article and/or content contained herein are for general reference only
and are not meant to substitute for proper professional advice and/or due
diligence. The author(s) and Zeppelin, including its staff, associates,
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