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frugalista

What Is "property Speculation"?

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If I say "property speculation" many people probably think of get-rich-quick types buying BTL flats to "flip" for a quick killing.

However, property speculation is really defined as follows:

buying or holding property based on the belief that the capital value will increase

If you think carefully about this, you realise that it encompasses far more than just amateur developer types. For example:

  1. FTBs panicked into buying in order to "get on the ladder"
  2. Owner occupiers moving, but keeping their previous property as an "investment"
  3. People at or near retirement age continuing to hold more property than they need

The anecdotal evidence on this forum seems to be that the above trends are at an all time high. This is property speculation. Remember, home ownership demand has two components:

home ownership demand = housing demand + speculative demand

When price rises fail to materialise, the speculative trends will fall away. When it becomes known that house price inflation has stopped, FTBs will not feel panicked, owner occupiers will not want to hang on to their previous property, retirees will want to downsize. Then the speculative demand component of home ownership demand will evaporate and the price will fall.

frugalista

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STR is also a form of property speculation

then you could also argue that my decision not to buy in the hope/expectation of a crash is also speculative?

Unless I was genuinely priced out - which is a moot point. I *could* borrow the sum required, whether I could pay it back is another matter...

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STR is also a form of property speculation

Well, okay, in the broadest sense I guess. I am really trying to flesh out those kinds of activity which increase speculative demand (STR reduces it).

frugalista

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speculation=anything you do in the market which is not Hedgeing or Arbitrage.

it could be argued that STR is a form of hedgeing. scince they are getting out of the market to limit their exposure.

EA= an Arbitraguer in real estate.

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then you could also argue that my decision not to buy in the hope/expectation of a crash is also speculative?

Indeed it is. You're taking a short position.

Not owning property is a neutral position. It doesn't matter if it goes up or down, it doesn't affect you financially. A short position entails selling an asset you don't own. This is not possible in the housing market, unlike the stock market.

speculation=anything you do in the market which is not Hedgeing or Arbitrage.

it could be argued that STR is a form of hedgeing. scince they are getting out of the market to limit their exposure.

EA= an Arbitraguer in real estate.

EAs are brokers - they introduce buyers and sellers for a fee. They do not bear risk or buy and sell assets.

I would say that the "below market value" crowd are arbitrageurs. They buy in the "distressed" market at a discount, and sell in the "non-distressed" market at full market value. Strictly arbitrage involves the simultaneous purchase and sale of an asset, so little or no risk is borne, but this isn't possible in property.

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EAs are brokers - they introduce buyers and sellers for a fee. They do not bear risk or buy and sell assets.

I would say that the "below market value" crowd are arbitrageurs. They buy in the "distressed" market at a discount, and sell in the "non-distressed" market at full market value. Strictly arbitrage involves the simultaneous purchase and sale of an asset, so little or no risk is borne, but this isn't possible in property.

I guess your right but about the agents I was thinking about it in the way that their actions are the same buying a house and then simultaneously selling it for a price 2% greater than they paid for it. but yes they dont actually buy or sell and experience no legging risk. hence are Broker-Dealers.

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Not owning property is a neutral position. It doesn't matter if it goes up or down, it doesn't affect you financially. A short position entails selling an asset you don't own. This is not possible in the housing market, unlike the stock market. [smell the Fear]

Unlike owning shares we all need somewhere to live, so very few people truly have a neutral position. As I read Fancypants post, he hopes to gain financially by buying a house at a lower price thereby reducing his housing costs from what they would otherwise be. That's not a neutral position.

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Not owning property is a neutral position. It doesn't matter if it goes up or down, it doesn't affect you financially. A short position entails selling an asset you don't own. This is not possible in the housing market, unlike the stock market. [smell the Fear]

Unlike owning shares we all need somewhere to live, so very few people truly have a neutral position. As I read Fancypants post, he hopes to gain financially by buying a house at a lower price thereby reducing his housing costs from what they would otherwise be. That's not a neutral position.

There are other things more important to humans than shelter - e.g food. How come we are happy to buy food on a weekly basis? Why not stockpile several years supply of basic foodstuffs?

This is effectively what we do in buying a property. The alternative is renting. Having a 1 year lease on a property is perhaps the equivalent of having one weeks worth of food - it is sufficient shelter to last a reasonable length of time. Why not view housing as a cost? The only reason we don't is the myth that "house prices always go up".

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This thread has gone completely off the point.

WHO CARES if there is a definition of "property speculation" which includes STR. I don't.

home ownership demand = housing demand + speculative demand

I am interested in how much speculative demand is holding up prices. The phenomenon of STR is completely irrelevant.

frugalista

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This thread has gone completely off the point.

WHO CARES if there is a definition of "property speculation" which includes STR. I don't.

home ownership demand = housing demand + speculative demand

I am interested in how much speculative demand is holding up prices. The phenomenon of STR is completely irrelevant.

frugalista

I'm a STRer and hoped that my minimal contribution to the market (selling and converting my asset to cash and then not buying again) would reduce the "speculative demand" part of your equation.

If a lot of people decide to STR then surely that will reduce the overall "home ownership demand".

Sorry to be picky, but basically I agree with your original post. When the majority of people do not see any speculative GAIN from owning residential property, then we can have the much-needed correction.

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Sorry everyone, I was just getting stroppy coz it seemed to be that the thread had turned into a "who are the evil speculators" witch hunt.

I'm a STRer and hoped that my minimal contribution to the market (selling and converting my asset to cash and then not buying again) would reduce the "speculative demand" part of your equation.

If a lot of people decide to STR then surely that will reduce the overall "home ownership demand".

You are completely correct of course. However, I think STR, which is bearish speculation, is a very small phenomenon, whereas I suspect the "bullish speculation" trends which I mentioned in the original post are quite possibly very significant market drivers.

frugalista

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It's interesting that 'speculation' is now a word with negative connotations whereas in 1830 it was equivalent to 'investment' today - See this Thread

I wonder if the word 'investment' or 'BTL' will go the same way.

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It's interesting that 'speculation' is now a word with negative connotations whereas in 1830 it was equivalent to 'investment' today - See this Thread

I wonder if the word 'investment' or 'BTL' will go the same way.

I am sure there will be some comedy reinterpretations of the BTL acronym

e.g.

Bad Tenant Litigation

or

Big Tax-bill Looming

Any other suggestions?

frugalista

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It's interesting that 'speculation' is now a word with negative connotations whereas in 1830 it was equivalent to 'investment' today - See this Thread

I wonder if the word 'investment' or 'BTL' will go the same way.

Having worked in one organisation that had got the Investors in People plaque - I bloody well hope so.

Exploiters in People???

Not that I'm bitter or anything..

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I like Mark Cuban's definition of speculation:

"If you spend the money and the only way you can earn a return on that money is by selling whatever it is you have purchased. You are speculating."

Delightfully simple. By this definiton not all BTL is necesarily speculation, although in practice I think it usually is. Thr rents offset the holding costs (mostly the interest on loans), but the real money is usually made (edit: whoops, i mean obtained) in capital gains. That's speculation. Speculation is not inherintly bad - it is just redistribution of wealth. However I am of the opinion that large differnces in the distribution of wealth is inherintly bad.

The annoying thing about land specualtion is that people need land to place dwellings and workplaces - two essential ingredients for the creation of real wealth. When land prices are driven up speculativley the creators of real wealth - workers and emploers - become priced out.

Edited by moit

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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