14 January 2013

Everyone has an Interest in Properties: Bubble Creation - Insight

Recently, I have observed an interesting phenomenal: everyone has an interest in properties, either properties development or properties investment. The rich tends to be properties developers; while slightly rich guy tends to be properties investors (of course, there are lots of 'heroes'. But I am not going to include them in this sharing).

Supply-demand theory

One interesting thing from this interesting observation that I can figure out is it is total 'safe' according to the supply-demand theory. Yes, it is 'total safe', if and only if, the momentum is continued, ever-lasting. On one hand, there are lots of supplies (obviously, from either newbie or experienced properties developers). On the other hand, there are lots of 'demand' (from investors). Thus, one way to continue this momentum is to 'nurture' more 'new investors' to consume these 'abundant supplies'.

Hmmm... it is pretty coincident when there are lots of 'properties experts' suddenly appear around the country to fulfil the tasks (to 'nurture' more 'new investors'), namely... ... ... Well, as a saying I heard before - "stop people earn fortune is equivalent to killing people parents", so I just share my insight about bubble creation as follows.

Bubble Creation

Actually, bubble is an unavoidable 'opportunity'. This is mainly caused by human being instinct or survival instinct. A simple example can be depicted by the sequence of bubble creation as follows:

(1) If there are lots of people who willing to pay premium price for certain products (namely, XXX), lots of business persons will try to produce XXX to fulfil the demand (or to earn money).

(2) If the revenue is so attractive, of course, more and more business persons (even those who do not familiar with XXX) will join "the party".

(3) In order to defeat their competitors (other business persons), a mass production or special strategy (such as promotion, discount and advertisement) may be necessary. One effective promotion tool is to create a "good feeling" to current buyers so that they will spread it to other potential buyers. How? Very simple - "hey man, your XXX that bought last two years got 100% appreciation just because you choose us (name of company)".

(4) People start to believe that now is the only chance to buy the product. Otherwise, the price will raise beyond their affordability.

(5) People who planned to buy a XXX within next five years "join the party" in advance; people who speculate it "join the party" all the time; people who simply got too many cash in bank, of course, "join the party" for fun;

(6) When more and more people "join the party", more and more suppliers also join in to fulfill the demand - "we never let them down - let's produce more products for them."

(7) After few years partying, people received what they wanted (that is, lots of XXX in hand), suppliers  also received what they wanted (that is, attractive profits). Win-win situation is expected to be achieved, if and only if, the people really want lots of XXX in hand.
So the ultimate question we should be questioned is: why we need so many XXX in hand? For fun? or simply there will be lots of silly guy will pay premium price for XXX in the future? Or for recurring return? How? Is it feasible?
That's all for today. More fascinating articles and sharing will be updated from time to time in Xaivier Blog. So, you are welcome to subscribe our feed, look at our sitemap or simply visit our Homepage for latest sharing.

Written by: Xaivier Chia

(P/S: The above sharing is solely based on personal insight. Please do not take it seriously. However, your valuable feedback are very welcome.)


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