Will your realty theories burst like a bubble ?

Real Estate June 07, 2013 00:00

By Srettha Thavisin
President of

Every now and then, as I skim through my newspapers in the morning for updates, analysis, insights or humorous things to cheer up my day, I have to pinch myself just to remind me that what I'm seeing in the papers is right there again.

No, it’s not news about bluffing games or more accusations between the opposition and government. What I’m talking about is one of the topics that have been repeatedly and regularly brought up by academics, analysts and scholars in recent years. It is one of the topics that these people always seem so excited about to entertain us with all their insights and analyses based on their generalisation of social and economic data, as well as straight-from-the-textbook monetary and financial presumptions.
I am talking about real-estate bubbles. Now, you might think that I would of course be irritated and bothered by this issue and would go the distance to counter whatever these people imply and say based on my commercial interests, since I’m a real-estate developer.
Well, I see no point in arguing with whatever you might think, since I’m not in the position to defend my stance. But what bothers me somewhat is the negative effect such opinions will have on the industry as a whole. People could hesitate to make decisions, sales might drop and developers would suffer. But as mentioned above, my bigger concern is how these opinions are always based on the generalisation of secondary macro data, while these people never visit the market and talk to real consumers or study the real situation in microscopic detail.
In business, when you make decision, you have to live with the consequences, right or wrong. But to me, it seems very easy for these so-called experts just simply to say there is a sign of a bubble coming without any conscience. You know why? Because they don’t have to live with the aftermath of what they publicly announce.
Of course, they are not in the real-estate business. That is one thing. But the worse thing for me is that they can twist the scenarios to fit the way they want them to be and make themselves look good. If a bubble emerges, they will come out and say, “See? We told you so.” But if the bubble is somehow averted by whatever factor, they will come out and say, “See? We warned you, so you adjusted your plan and disaster has been avoided.” 
But on the other hand, based on numerical and statistical data available to these people, I pity those who have to digest those figures and try hard to find the most likely and accurate equation to explain their theories about the bubble and the expected outcomes.
Think of the recent deaths of two tornado chasers in the US. Despite all the high-tech gear and most accurate predictive technology you could have on hand when on the road chasing twisters in Oklahoma, there always lurk some minor unforeseen factors that could suddenly change the path of a tornado and smash you. 
I would think that the same goes for other kinds of predictions and studies. With all the advanced technologies available, the tornado chasers still faced death. So I have to ask myself, why should we wholeheartedly take into account these so-called experts’ agendas and act accordingly, especially when we know that the same old theories and assumptions are again used to analyse, predict and form the ideas of something that is entangled with the ever-changing demographic and psychographic nature of our society, which could in a way affect the way the economy shapes up, as always? I personally think we are asking too much of them to provide the most accurate assumptions that we will base our direction on for the next year or years in moving about.
Let me give you an example here. They say the signs of a bubble are clear upcountry. The reason? It’s because figures show that land prices have multiplied sevenfold. Well, land prices are just one thing you have to take into account when you run a project feasibility study. What if the bloated land price is still within the bracket of acceptable cost for development? A seven- or 10-times land-price hike is still OK for the development cost of such a segment unless it reaches the maximum threshold. Have any experts looked into this detail before making these comments? 
Having said all this, I want to reiterate that I am not in a position to tell whether a bubble is looming or far from happening because it might sound biased coming from me, and frankly I really don’t have a crystal ball. But what I can tell you is that the assumption of a bubble is a very delicate thing that will do nobody any good except, as mentioned earlier, the people who think they do have a crystal ball.