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A real estate bubble is an economic condition favoring the real estate sector. Real estate markets witness on and off real estate bubbles. Some bubbles may last long, and some may last for a very brief period.
During a real estate bubble, a lot of things buying and selling of property happens. People are more optimistic of the economy and find it safe to invest in real estate. Their logic is based on the hope that property prices will appreciate and so will demand for property.
But there’s a problem here. Although real estate prices may appreciate, it is not necessary that demand appreciates. Demand is based on the liquidity in the consumer market. If people are skeptical of the economy they will not go to the bank and take a home loan or a property loan. Also, banks might have bad debts, which will deter them from handing over loans for property or home unless an initial deposit is made.
Real estate is just one of investment categories. It should not be the main investment. Many people make the mistake of investing only in real estate. When there is a case of negative real estate bubble, the property value gathers moth. There would not be any utility for the property.
When investing in real estate it is important to understand the need. If the investment is for a home, then it’s OK. If it is for only investment purposes, care has to be taken. Investing in property might not fetch returns as predicted, unless a predicted real estate bubble is round the corner.