In the blog post 'When the new apartment is equal to the second-hand market price - a clear sign of a bubble', we delve into the economic phenomenon that occurs when the price of a new real estate equals the second-hand market price. We will analyze the trends and reasons behind this phenomenon, and examine its effects on the real estate market and the general economy. Is this a sign of a bubble-saturated market situation? Find out in the blog below.
By: Chaim Atkin | Certified Real Estate Appraiser | Real Estate Researcher | Real Estate Analyst | Fundamental Value Expert
In a normal economic reality, any reasonable person would agree that a new apartment should be more expensive than a similar second-hand apartment – and by a significant margin. The reasons for this are clear: VAT, development costs, developer financing, contractor liability, stricter standards, and profit margins for the developer. Therefore, when we see cases – not isolated ones – in which this gap is erased or even reversed, it is a flashing red light: it is not just a point distortion, but a clear indication of the existence of an active and dangerous real estate bubble .
️ How much more expensive should a new apartment be?
According to my analysis, based on production costs, taxation, and profit margins, a new apartment should be about 15% to 25% more expensive than a similar second-hand apartment. When a new apartment is sold for the same price as a second-hand one, there is a disconnection from fundamental value , the meaning of which is clear: a market that is priced out of inertia and manipulation, not out of a real economy.
