How To Spot Real Estate Bubble In A Market
Although property markets are down in most parts of the country, there are several pockets where prices have moved upwards. These areas have their own underlying strengths and advantages which keep them going even during tough times. Such locations, which include tourist destinations and pilgrimages, are a dream for all real estate investors. However, there is a limit at which prices would move upwards. If you enter these markets at a peak, you won't make money as expected or may even suffer losses.
Therefore, it becomes crucial for the success of your real estate investing goals that you make an informed decision. Let us arm you with some tips on how you can spot a bubble in any property market.
Unusual rate of flipping
Ravindra (name changed) bought a plot for Rs 12 lakh in the tourist hub of Udaipur in the year 2012. The location was close to an upcoming five-star hotel resort that was under construction at that time. In a matter of two years, his plot was worth Rs 21 lakh. He sold it off to another investor. Thereafter, prices increased further and the plot was priced at Rs 32 lakh in 2016.
During this period, the property was flipped by four investors who booked profits. Everyone has a pie of the cake. Now, what about the investor who bought this plot at Rs 32 lakh? Prices have peaked, and there are all the chances that this buyer won't be able to clock the kind of returns other investors could manage.
The lesson: Always check the history of a property. If it has exchanged hands for too many times, avoid it.
Loan-based investments
No one wants to miss the bus when a property market is doing well. People do not resist from even taking loans to invest in properties. In such markets, you will hear stories where people have taken loans from not only banks and financial institutions but also from the open markets, paying up unusual rates of interest.
You must try to explore how properties in the vicinity are financed. Sellers, brokers, bank executives, lenders and even buyers can be the source of this information.
The lesson: Here is a red flag. Do not enter such a property market. It is going to burst sooner than later.
Occupancy levels
You visit a great ready-to-move-in residential project, and find out that the occupancy levels are quite low despite a considerable period it was up for possession. What does it say? Probably, most properties are blocked by investors.
Buying a property in this project means that you will be a part of the bunch that is looking to sell out properties to make some returns. There will be competition, and it won't be easy to make good returns.
The lesson: Do not follow the herd.
Buying an investment property in an overheating market is the biggest and the most common mistake made by investors. We believe you won't do it ever.