Property bubble

We often hear about the property bubble or property bubble burst in the real estate industry but do you know what exactly property bubble and property bubble burst are?

Property bubble or real estate bubble is a type of economic bubble that occurs occasionally in local or global property markets. It is characterized by a rapid expansion followed immediately by a contraction. In other words, there is a rapid increase in valuations of property and this situation will keep continue until it reaches unsustainable levels and then decline, resulting in the overall property market to collapse. We named this situation as property bubble burst. This would be followed by an economic recession in the market.    

Property bubble usually starts with an increase in demand but with limited supply in the market. When there is an increase in demand, the speculators who attempt to profit from short term fluctuations through buying and selling will enter the market, further driving demand for properties. Prices go up when demands outpace current supplies. The demand will then decreases or stagnates when the properties are priced too high but at the same time supply increases, eventually resulting in a sharp drop in prices. Therefore, the bubble bursts.      

Bear in mind that there are many other factors contribute to high property prices besides than increasing demand and buying for speculation rather than shelter including inflation, increase in average income, increase in population entering the housing market, low interest rates, etc.