In the year 1997, the property prices in Hong Kong were considered to be the world’s most expensive. The outsiders would often wonder at the skyrocketed prices of real estate that people would pay in Hong Kong. The residents were not amazed simply because the city is business oriented and have striven to rise from being a third world country to that of a glittering one. Aptly said it is one of the most dynamic cities that exists worldwide.
John Eilermann of McBrides sons and company understands why the real estate price would fluctuate worldwide depending on the region. With Hong Kong, people were hopeful that it would soon develop into a place where the world would do business in the future. This simple statement about the region led to the hike in the property prices and seven years later a normal apartment would cost 30% more.
A similar story was being unfolded in Tokyo, where due to the Imperial Bank, the property prices was expected to cause more than even the New York. However, the Bank of Japan fell into an untuneful event leading to its fall of interest rates and crash of real estate property prices. This in fact led the experts of the real estate market like John Eilermann St. Louis believe on the fact that what might look reasonable at the time, may be a foolish decision later.
The real estate market are characterised by bubbles. These bubbles are irrational over investment in particular sector or economy and what is most interesting about the property markets is that it would run in cycles, and therefore, bubbles and depression was seamlessly predictable.
Since the beginning of the industrial revolution, the world has been undergoing long waves of growth and depreciation. There was occurrences of depression every 45 to 65 years. Moreover, there was a regular shorter term of cycle of 6 to 12 years which was called to be the business cycle. During the later part of the 19th century, there were institutes who explained these business cycles and which was soon found to be one of the reasons to explain the price bubbles and falls in the real estate markets all around the world.
As per Tracy Luttrell of St Louis, in the 1930s the concept changed, wherein economists left the business cycle framework. The cause of depression was blamed on the policy makers and the economists hoped that it could be smoothened out. The business cycle did not disappear.
In the 1970s, another theory came into play. Studying the stock market behaviour, the efficient market hypothesis argued about asset prices reflecting the best current information about value of the asset. Whenever there is news about an individual company, stock prices goes upwards within a day or two. The prices do not rise slowly over the weeks or even months as per Tracy Luttrell of St. Louis.
From all of this, conclusion was drawn that the stock market had a different mechanism regarding absorption of new and objective information. A stock price chart of any company would have a pattern which was called random walk. Reflecting on the news available today the price market varies. Because the price cycles would be predictable, it was still possible to think about the nuances of the property.