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Why do you believe that the property profession has been so poor at judging major turning points in activity in property markets

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Introduction

Why do you believe that the property profession has been so poor at judging major turning points in activity in property markets? Illustrate your answer in light of recent experience in the UK over the period 1985 to 1995? Property worldwide is noted for booms and slumps, and on occasion running to full blown crises with serious wider impacts. To understand why the property profession has been so poor at judging major turning points it is important to define what is meant by the property cycle: Property cycles are recurrent but irregular fluctuations on the rate of all-property total return, which are also apparent in many other indicators of property activity, but with varying leads and lags against the all-property cycle. The difficulty of the property market is that although the returns demonstrate a steady long-term trend, in the short-run the market is subject to cycles and can therefore be extremely volatile and damaging. The period between 1985 and 1995 is often cited as the best example of the boom/bust economy, during the Conservative government's supply side reform era, where the volatility of the property market was particularly evident. ...read more.

Middle

Data validity can be very problematic as depending on the sources and time line. This is heightened in the property market where pre-1980 property history (a major step to 1981 when IPD figures were based on 133 portfolios as opposed to 6 in1971) data was subject to uncertainties and errors arising from differences in coverage and in methods. Nevertheless, there has definitely been a conscious move by researchers- aided by globalisation and increased communication links and information through the internet- and today there are ample available and accurate sources used in economic models, such as the Economics Trend Annual Supplement. Up to date figures are essential as the markets are in a state of perpetual change. The lack of this data and failure of individual firms from pooling their research together may have been a key reason why they gave terrible advice to customers, yet it is best discuss the failure of the property profession in more detail later. Unpredictable shocks and mismanaged government policies exacerbated problems for forecasters in property market. During the 80s government policy helped to fuel the boom in property, with incentives to become homeowners like MIRAS-mortgage income relief at source). ...read more.

Conclusion

These lags are make turning points difficult to pin point as they are prone to variations. The failure of the property profession in relation to all the other factors does seem to be a major reason why it has failed to forecast turning points. Despite the wealth of statistics and evidence, the lack of clear economic understanding and theory in the industry makes interpreting data difficult pointless. The lack of economic theory means models become useless too, and surveyors have been accused many times of just advising clients based just on 'gut instinct.' This intuition, although useful as it may be based on many years of experience in the industry, is far too unsubstantial to predict turning points in the market. Surveyors focused too much on the present, and are blissfully unaware of the wider structural changes occurring in society as a whole which are changing both the demand and supply of property. Maybe they do not have the resources or time to conduct detailed research within the market. The biggest problem during the period was the fact that property and economic information became a marketable commodity, thus each individual firm was suffering from asymmetric information. They did not see the benefit of pooling their information together, with no individual firm knowing enough about what is going on. ...read more.

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