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The housing bubble will burst
Right now there is a housing bubble. And when it does burst, there will be tragic consequences.
Real estate prices are hitting the roof in Guyana. The high cost of real estate is being exacerbated by a most distasteful policy on the part of the government to sell state lands to private developers who in turn are making a killing in the real estate market by tapping in to those who can afford to pay the astronomical prices that these developers are demanding for land.
The government itself has now raised the base price of house lots, thus further pushing up the price of land on the open market. The government itself is now scandalously shifting its emphasis away from working class homes to feeding the hunger by the middle class for opportunities to invest their monies.
This has led to the mushrooming of gated communities which are now creating an elite grouping in the real estate market in Guyana.
In addition, the sky-high prices are being fueled by speculative activities from elements in the private sector and from massive tax evasion and tax avoidance, the proceeds of which are being ploughed into real estate.
There are many persons, who instead of paying their fair share of taxes, are creaming off what should rightly go to the tax man. This money is then being invested in real estate, further driving up the price.
Real estate at the moment is at its highest ever and will get higher because the economy is pushing these prices upwards by generating increased demand. The gold boom has also helped to drive up the demand for real estate but a protracted gold boom will have the reverse effect.
A prolonged gold boom will eventually result in greater investments being ploughed into sectors closer to the mining areas with the interior in particular being opened up. This has been the case in many countries in which there has been a gold boom.
With thousands of house lots distributed by the government and with many of these housing lots becoming eligible for sale by owners, this will place these lots in competition with the private lots and gated communities, which are now fetching run-away prices.
In short, the high priced housing and land bubble is going to burst and when it does a great many persons are going to be left in tears. It is inconceivable that the government should have distributed in excess of fifty thousand house lots, most at rock bottom prices and most of which have been developed over the years and these will be left at the bottom plank of the real estate market.
Demand that is driven by economic activities will eventually plateau out. Whichever way you look at it, the internal market in Guyana is small and there are limits to the size of that market and consequently to the proceeds which it is capable of generating. As such, demand will eventually fall here too and this will cause the present real estate bubble to burst.
Those with the vision to see the housing bubble burst are selling now that the prices are high and are refraining from buying at the moment. But too many others are caught up in the fever of the demand for land and housing and are investing in the hope of realizing their dreams. Many of them have entered into long term loans. But one has to question what will be the value of their properties by the time they would have paid off for their homes.
By then the bubble would have long burst. They may be hoping for a second bubble but that is big gamble to take.
In the eighties in Guyana there was a similar housing bubble to the one that now exists and many Guyanese who now reside abroad benefitted enormously by obtaining high prices for the properties they held locally. But those who bought these high price properties found that the value of their properties quickly shrunk after that bubble burst and contracted even more when the PPPC came to power and launched its massive housing programme, which further depressed housing prices.
Those who forget the lessons of the past will repeat it again. The country’s economic bubble may not burst for sometime but as sure as day follows night the present high prices for real estate cannot be sustained for much longer.
When the present bubble bursts, a great many persons are going to be left wondering where the high value of their properties disappeared to.
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