One shouldn’t miss out on tracking Ahmedabad real estate in PM Modi’s era

September 1st, 2014 by Vivek Sahasrabudhe

Over the past couple of months, no other Indian state has been talked about as much in the Indian media as Gujarat. Be it about Mr. Narendra Modi, former chief minister of Gujarat who is now Prime Minister of the nation or the growth model of the state.

This fast developing province has seen the decade-long efforts start to bear fruit in the area of infrastructure development especially in Ahmedabad, the commercial capital of the state. In recent times, the city has become the symbol of the state’s progress story.

The uninterrupted electricity and water supply, the wider roads and the rapid bus transit system have helped Ahmedabad to cement its position as a manufacturing hub. In the past, despite the city being known for its industries, particularly its textile and pharmaceutical enterprises, it did not create a sector-specific demand for real estate, unlike the IT/ITeS sector did for Bangalore and Pune. Up until recently, the city produced mostly blue-collar jobs and those employed preferred affordable housing, particularly in the unorganised real estate sector.

To attract the participation of the organised real estate sector, affordable and well-connected real estate developments were on the checklist of the Ahmedabad Urban Development Authority. The planning resulted in well-rounded growth as Ahmedabad, unlike other cities, did not have any geographical constraints on expansion. Also, the committee refrained from giving any specific city node an undue advantage, due to which capital value appreciation was held in check for many years!

Nonetheless, in recent quarters, noteworthy growth was registered in residential real estate prices. Residex, the index published by the National Housing Bank covering price movements in urban and semi-urban areas, showed that Ahmedabad residential real estate prices have grown faster than other major Indian cities over the past four quarters.

It is true that current market sentiment has turned positive following the country’s recent general election but physical indicators have played a vital role too. The employment opportunities generated by the industrial/manufacturing segment have contributed most to the evolvement of real estate activity in recent times.

With improved infrastructural facilities, many new manufacturers of automobiles, engineering and instruments have established themselves in the city and existing industries have been expanding their plants, especially on the outskirts of Ahmedabad in Sanand and Changodar. To support the manufacturing hubs, logistics activity has also been growing fast.

Newly generated employment has looked at organised real estate to fulfil its housing needs as prominent developers have been offering small ticket size affordable dwellings in the outskirts of the city.

Another growth driver relates to the fact that Gujarat is part of the Delhi Mumbai Industrial Corridor (DMIC), which is an ambitious project aimed at developing industrial zones. Ahmedabad is anticipated to be an important link in this corridor. The city is expected to create more jobs, attract investment and ultimately generate greater housing needs. There will be no surprise if other cities in Gujarat follow Ahmedabad’s example in the coming years.

About the author
Vivek Sahasrabudhe is the Analyst of Research and Real Estate Intelligence Service, for JLL in India, based in Mumbai.

Hard times at Fun City tell cautionary tale for decentralised retail in China

August 28th, 2014 by Warner Brown

Cimen Fun City opened a year ago as a major new addition to Changsha’s retail market. The mall contains a swath of mid-range fashion and dining options as well as a Poly cinema. Its crown jewel is the presence of H&M, Uniqlo, C&A, and Muji, which at the time of the mall’s opening was the greatest concentration of fast fashion brands in Changsha. Even ignoring the furniture market that occupies part of the building, at 160,000 sqm Fun City remains one of the largest retail properties in the city.

It also is one of the emptiest. A year after the mall’s heavily-promoted opening, Fun City employees often outnumber customers. Only the relatively small portion of F&B shops are regularly bustling.

Why is Fun City having such a slow start? Two reasons stand out.

One is location and accessibility. Fun City is nine kilometres southeast of the city centre, not far from the city’s new high-speed rail station. While the station area officially has been pinpointed for intensive development, residential building is still ongoing and current occupancy is limited thereby restricting Fun City’s immediate catchment. Accessibility is poor, with few convenient connections to downtown or other non-core areas. Metro access to Fun City is promised for the future, but the city’s first wave of metro completions is already boosting access to the downtown shopping cluster, tipping the balance away from Fun City.

China’s Tier II cities are not without examples of major shopping malls growing their business in line with the emergence of new districts. See for example China Resource’s MixC mall in Hangzhou’s Qianjiang New District, which grew into one of the city’s destination malls as the Qianjiang area matured. The operators of Fun City doubtless expect to follow a similar trend.

They may be tripped up by the mall’s second major problem: design. Fun City’s shopping mall portion shares the upper floors of its building with one of the Cimen company’s traditional furniture markets. While Cimen may have expected enthusiastic customers to come for commodes and stay for Uniqlo, the result feels more like a utilitarian furniture emporium that happens to sell fast fashion. Meanwhile, the more successful F&B and cinema tenants are ghettoised in a separate building, limiting their ability to generate foot traffic elsewhere. The shopping experience cannot compare with the more comfortable public spaces and inviting store layouts of wholly-owned downtown malls like ID Mall and La Nova – or the China Resources-developed MixC, for that matter.

Fun City’s uninviting shopping environment risks prolonging the mall’s maturation period, and even raises the possibility it could sink into a ‘ghost mall’ state before the neighbourhood gains traction. More troubling still is that there are nine other malls of 100,000 sqm or more planned for decentralised Changsha, often by inexperienced local developers – up the street from Fun City there is yet another furniture seller making its foray into commercial property. This doesn’t necessarily mean that Changsha has a looming oversupply problem, but developers will need to take more seriously the challenges of building successful decentralised shopping destinations.

About the author
Warner Brown is a Senior Manager in JLL’s research team in China, based in Shanghai.

Fuelling Beijing office demand: two key industries to watch

August 26th, 2014 by Chris Clausen

During client meetings I’m frequently asked “Which industries drive demand for Beijing Grade A office space?” Most of our clients are familiar with the usual suspects: banking, investment, insurance, legal and professional services. However, not as many are familiar with the automotive and hi-tech industries – two industries which have shown very strong demand momentum in recent quarters.

China has been the largest new car market in the world for several years, having surpassed the USA in 2010 according to McKinsey. Some international carmakers have partnered with local companies to manufacture cars in Beijing. However, what drives demand for Grade A office space are the sales and finance operations of these firms which have expanded along with the growth in new car sales in China.

The central government’s recent antitrust probes, which have targeted some international carmakers, have left many pondering the effects on foreign carmakers. While any fines imposed would surely dampen profitability, we do not expect to see a drop off in demand for office space from foreign carmakers. New car sales continue to grow and many of these firms are likely to expand their Grade A office footprint to efficiently tap the growing demand.

Zhongguancun: Beijing’s IT hub
Beijing is also known as the Silicon Valley of China. Strong policy support for the hi-tech industry and a deep pool of highly-educated talent have resulted in several large domestic and foreign hi-tech firms leasing Grade A office space in Beijing, and this is not limited to Zhongguancun, a tech hub in Haidian District of Beijing. Large foreign hi-tech companies, such as Microsoft and Apple, have driven demand for Grade A office space but domestic firms are on a quick ascent. The policy environment has also fostered the growth of domestic internet giants such as Tencent, Sohu, and Baidu, who occupy huge spaces in Beijing. Furthermore, some domestic hi-tech companies are competing strongly in the China market with leading global brands. Xiaomi became the top selling smartphone brand in China, surpassing Samsung, in the second quarter of 2014. While the pace of expansion demand from foreign hi-tech firms may be curtailed, domestic companies are likely to pick up the slack.

The flourishing automotive and hi-tech industries set Beijing apart from other Tier-1 cities in China. And although they are not the largest occupiers in Beijing, they are showing rapid, sustainable growth. Firms from these industries will be substantial contributors to take-up not only in decentralised but in core areas.

About the author
Chris Clausen is a Manager in JLL’s research team in China, based in Beijing.

Sydney’s population growth fuels trend for higher density housing

August 25th, 2014 by Emil Roue

Recent revisions to Sydney’s population projections made by the Department of Planning and Environment indicate that the population of the Greater Sydney metropolitan area could reach 5.9 million by 2031, reflecting an annualised growth rate of 1.6% between 2011 and 2031.

The forecast increase in population means that Sydney faces a significant challenge in meeting its future housing requirements, particularly given that the market has been undersupplied for a sustained period of time.

The Department of Planning and Environment forecast that an additional 664,000 homes will be required by 2031 and have established housing targets in the Draft Metropolitan Strategy for each of the six Sydney sub regions.

A likely consequence given the level of projected housing need is further construction of higher density housing.

Compared with many other cities around the world, Sydney has, in fact, a relatively low housing density. However, over the past decade, there appears to have been a structural change in buyer preferences, particularly amongst younger cohorts. Many are turning their back on the aspirations of previous generations who dreamt of a life in the suburbs, in favour of living in areas closer to, or with better transport links to, Sydney CBD. The higher land prices associated with these locations, of course, necessitate higher housing densities. However, buyers appear willing to trade space for convenience. This trend is evident in building approvals data for Sydney. 68% of approvals in the 2013/14 financial year related to attached dwellings.

However, higher residential densities are unlikely to be confined solely to inner city locations. The eight Urban Activation Precincts announced by the State Government in March 2013 aim to deliver higher density housing in highly accessible suburbs. These include Macquarie Park, Mascot and Randwick, allowing housing supply to increase in areas with close proximity to infrastructure, transport, services and jobs.

Higher residential densities are also proposed for suitable development sites located both within and on the periphery of the CBDs of regional cities such as Parramatta, Liverpool and Penrith.

A more recent trend is the inclusion of higher density housing in master plan communities. These are often located in outer Sydney in areas dominated by detached dwellings. Whilst apartments make up a relatively small proportion of the proposed housing in these schemes, they are seen as a way of both attracting investors and addressing the affordability issue facing many owner occupiers owing to their lower price points.

Indeed, in view of the challenges surrounding both housing supply and affordability in Sydney, it would appear that more and more of us will be living in higher density housing in the future. The majority will be located close to public transport, infrastructure and employment hubs.

Building at higher densities will not automatically solve all of Sydney’s housing problems, as to do so requires an integrated approach at all levels of government. However, it is clear that it will make an important contribution to meeting the housing targets set out by the Draft Metropolitan Strategy.

About the author
Emil Roue is a Research Analyst for JLL, based in Sydney, Australia.

Three reasons why the Singapore industrial en bloc market remains a hit

August 22nd, 2014 by Clement Chua

Industrial properties have been a major contributor to en bloc transactions in Singapore over the past five years, supported by local players. So what is driving the allure of such assets and does this spell opportunity for foreign funds?

*Excludes related transactions (i.e. Portfolio injections by Sponsor)
Sources: URA and JLL Research

1. Yield accretive sale-and-leasebacks

A familiar practice in the industrial sector, sale-and-leasebacks enable the seller to free capital for business enhancement and offload management of non-core real estate. For this reason, sellers are often happy to pay a premium rent in exchange for the immediate cash benefit. Such arrangements typically command a higher overall rent due to a charge on the entire built up area as compared to a multi-tenanted context which is rented on a smaller leaseable space. For instance, Hyflux Innovation Centre, which sold for SGD 191.2 million in (date), reportedly achieved an estimated net yield of 7%.

Opportunities for such acquisitions are considerable with an estimated 54% of island-wide industrial stock being owner-occupied.

2. Industrial assets remain a viable investment alternative

*Excludes related transactions (i.e. Portfolio injections by Sponsor)
Sources: URA and JLL Research

Industrial assets are generally more affordable than other asset types (78% discount to en bloc office space since 2010), partly attributable to the shorter land tenures and higher valuation yields. However, having reputable tenants on long-term contracts could mitigate the latter. For instance, the acquisition of two HP buildings by United Engineers last year involved HP inking a five-year lease (with three options to renew for five year terms).

3. Government policies are hastening a clear out of labour intensive operations

Government policies have incentivised industrialists to either offload assets entirely or free up capital to improve productivity and intensify usage of their sites. A prominent example is Western Digital’s shift of manufacturing activity to Thailand. We have also observed more industrialists consolidating manufacturing operations over the past few quarters. The increasing stocks of such assets are apt for asset enhancement works to optimise the land and generate better return for the owner.

Assets are ripe for the picking, but investors will have to be selective

While local players possess greater familiarity and impetus to acquire domestic assets, the deals witnessed in recent months suggest there are opportunities for foreign funds to enter the fray. Even as the sector potentially faces some downside rent risk due to oversupply, foreign funds could target assets that offer 1) higher yields, 2) longer-term lease contracts with reputable tenants and 3) higher specifications (e.g. better floor loading and high ceiling). Softening prices, particularly in the multi-user factory sub-market, should open the door for opportunistic purchases.

About the author
Clement Chua is the Assistant Manager for JLL, based in Singapore.

Another residential conversion for St Kilda Road – is this deja vu of the 1990’s?

August 20th, 2014 by Kimberley Paterson

The number one question I have been asked over the past six months is: What about the residential conversion story? While this theme is evolving in Melbourne’s CBD, the trend is more pronounced in the St Kilda Road office precinct. With 95,400 sqm of stock in St Kilda Road recently acquired by residential developers, is this deja vu of the 1990’s?

The St Kilda Road office precinct is made up of 750,000 sqm of stock. Although this stock figure has remained relatively static since 2000, conversions to residential towers during the mid-1990’s to late 1990’s resulted in a 15% (131,340 sqm) decrease in stock in the precinct, down from 876,000 sqm in 1991 to 752,000 sqm in 2000.

Over the past 24 months, subdued demand for office space, low interest rates and a surge of Asian and local investment in apartments is driving a significant uplift in demand for residential units – notably of older office buildings. The St Kilda Road office precinct largely comprises of secondary grade space, accounting for 75% of total stock – the highest across all Melbourne office markets. There are only 10 A-Grade assets in the precinct, with no significant completions since 2004. The demand for sites is exerting upward pressure on land values, which have doubled over the past decade, making residential conversion the highest and best use for many secondary grade assets on under-utilised sites.

Since the start of 2012, 30 assets have traded in the St Kilda Road precinct. Of this, nine assets totaling 95,400 sqm have been acquired for residential conversion. This theme has been more prevalent in 2014. Over 50% of assets (45,400 sqm) transacted over the past six months have been purchased by developers who are likely to pursue a conversion to residential. Chinese developer Golden Age last month acquired a five-storey tower at 450 St Kilda Road for AUD 20 million with plans to demolish it for an apartment project. Also, 20-22 Queens Road changed hands for AUD 35 million to a company controlled by Chinese national Kathryn Yang. Multiple other sales have transacted (or are currently being offered to the market) with a similar residential conversion motive, suggesting overseas capital strongly believes there is money to be made in the space.

While 95,400 sqm of stock has recently been acquired for potential residential conversion, it is unlikely conversion activity will match the same quantity experienced in the 1990’s. Although we will see a gradual decline in stock over the medium term, growing residential activity is likely to have a positive impact on the St Kilda Road office market going forward. Not only will it provide improved amenity, conversions that do occur tend to be limited to low quality, inflexible secondary grade assets. Removing poorer secondary stock will have a positive impact on average net rents in the St Kilda Road market and encourage headline vacancy to decrease with displaced tenants most likely to seek out alternative premises within the precinct.

About the author
Kimberley Paterson is the Senior Analyst of Research for JLL, based in Melbourne, Australia.

Hi-tech Xi’an? Yes! Business park space supports industry growth

August 19th, 2014 by Frank Ma

Xi’an has several of the best universities in China and they consistently turn out an abundance of skilled labour. These graduates include many engineers which has, in turn, attracted many IT/high-tech giants, including IBM, ChinaSoft, Oracle, Emerson and Rockwell. Aided by government incentives for the high-tech industry, these companies have tended to locate in Xi’an’s business parks, the Xi’an High-Tech Zone in particular. But with that Zone now almost full, what is the likelihood of success for business park developments in emerging submarkets?

There is 1.5 million sqm of completed stock in Xi’an’s business park sector. Around 60% of total business park space is located in Xi’an High-Tech Zone, which was the first cluster in the city. In the past, the supply of business park space was mainly controlled by the government, because the provision of high quality but low rent space was regarded as a competitive advantage for attracting high-tech firms. After a decade of operation, almost all of the buildings in Xi’an High-Tech Zone are full. Those high-tech companies looking to expand often must temporarily turn to office buildings within High-Tech Zone in order to find space. Rents in the office buildings can be 50% higher than in the business park buildings and are typically missing some of the important technical specifications required by IT companies, such as increased electrical power and 24 hour chilled water for server rooms.

Recently, the government realised that the shortage of business park space would hinder the development of high-tech industries, so more land for business park use has been put on the market. The overall market will see supply of around 400,000 sqm of new business park space each year from 2014 to 2016.

Similar to other property sectors in the city, most of the new supply will come from emerging areas where the infrastructure and business support facilities are still under development. And this is where the challenge lies. In Xi’an High-Tech Zone, almost all of the business parks have achieved full occupancy levels, whereas the emerging sub-markets, such as Fengdong New Town and Fengxi New Town, have high vacancy rates across most of the business parks.

We see demand for business parks in emerging areas coming from a variety of sources: expansion requirements from companies in the established High-Tech Zone and from foreign newcomers attracted by government initiatives, as well as by the huge business potential in West China. With the extended capacity, Xi’an’s High Tech Zone and its business park sector will continue to flourish and further enhance Xi’an as the leading sophisticated manufacturing base in the region.

About the author
Frank Ma is the Head of Research for JLL in Chengdu.

REITs in Thailand – Towards a more competitive, transparent market?

August 14th, 2014 by Chawan Ratapana

A Brief History

In 2003, the Stock Exchange of Thailand (SET) introduced property funds (PFPO) as a new investment vehicle in an attempt to ease the lack of liquidity in the capital markets following the 1997 financial crisis. Since their introduction, total market capitalisation of property funds has increased by an average of 60.1% per annum, and currently stands at THB 277,801 million (USD 8.6 billion).

With widespread sentiment that the property fund scheme had run its course, the SET began planning for the introduction of Real Estate Investment Trusts (REITs) as early as 2007.

As the registration window for new PFPOs came to a close at the end of 2013, many firms had already started to plan the listing of new assets via REITs. With the REIT vehicle being the only way to list a property in the capital markets moving forward, the backlog at some law firms handling the deals is reportedly at least one year long.
So far, publicly announced REITs have been well received by the investment community.

Among known listings are four planned IPOs with an estimated capitalisation of USD 1.2 billion at launch. The first Thai REIT (comprising four assets, including an arena, convention centres and multiple exhibition halls with a combined GFA of 480,000 sqm) is expected to launch in 3Q14 with a value of USD 300 million at IPO.

What’s New – Increasing Competition

Unlike PFPOs, REITs can wholly own a property holding business, invest in both ongoing and greenfield (with limitations) projects, and invest in both domestic and foreign income generating properties. Furthermore, there are fewer limitations on REITs in terms of the types of assets that can be included.

REITs can gear up to 35% (or 60% with an Investment Grade credit rating) of their net asset value, potentially allowing for higher returns, whereas PFPOs were limited to 10%. REITs are also allowed to issue debentures.

REIT management is open to asset management companies as well as experienced real estate firms and entities than meet eligibility criteria whereas PFPOs were restricted to asset management firms.

What’s New – Improving Transparency

Whereas PFPOs were not required to hold annual shareholder meetings, REITs must hold meetings annually within four months of the end of a fiscal year, the same as other listed SET companies. Moreover, REIT regulations dictate that a shareholder resolution is required for all transactions of significant size, unlike PFPOs, which had no such requirements.

Under the REIT structure, underlying assets are subject to valuations every two years or after significant changes in the asset(s) to ensure transparency whereas valuation regulations under the PFPO structure were more lax.

The Bottom Line

As the REIT vehicle matures, we expect that increased information disclosure requirements should boost market transparency as a whole. Foreign investors who continue to look for attractive yields and liquidity should find T-REITs an improvement over their PFPO predecessors. Higher gearing ability and increased transparency are expected to translate into higher liquidity and return figures.

On the whole, we believe that the transition to REITs is a significant positive step forward and should encourage future growth across the different property market sectors.

About the author
Chawan Ratapana is an Analyst in JLL Thailand’s Research and Consultancy group, focusing on Capital Markets and Investment research.

Finance innovation: the untapped market in Shenzhen

August 12th, 2014 by Silvia Zeng

In my previous blogs, we discussed the big picture of Shenzhen’s ‘story’ and Qianhai’s ‘story’ in the area of policy incentives, supply vs demand balance, and analysis of industries such as technology. With regard to the question of ‘why Qianhai’, in my recent discussions with clients, including investors, developers and tenants, I have found some of them taking the view that potential demand growth in Shenzhen and Qianhai will primarily be policy and cost driven, i.e. preferential corporate income tax for qualified industries, and the advantage of lower rents in Qianhai compared to Hong Kong. However, I think this underestimates the role organic growth and innovation in key industries will play.

Qianhai is promoting five key industries, namely:

  1. Finance
  2. Logistics
  3. Information services
  4. Technology, and
  5. Other modern services industries

These are growth industries which are the focus of government reforms and where potential synergies exist by grouping them together.

Two examples of such cross-industry innovation in Shenzhen are:

  • Supply chain finance (SCF). SCF is a developing segment at the intersection of Logistics and Finance, providing credit and liquidity along the supply chain of traditional manufacturing industries such as automotive and Chinese medicine. SCF companies registered in Qianhai are pursuing business not only in Shenzhen, but also China and Asia-wide. For example, the Shenzhen-based Eternal Asia is the first listed supply chain service enterprise in China, with business across 380 cities in China and Southeast Asia.
  • Internet finance. At the intersection of Technology and Finance is the rapidly emerging area of internet finance. Leveraging the internet, smart phones, cloud computing, social networking and eCommerce, China’s internet giants and startups alike are launching securities and wealth management services, peer-to-peer lending, online high interest savings, and third party payment processing services. Shenzhen-based Tencent partnered with five securities companies to establish “Webank” in Qianhai, which is the first private bank approved by the China Banking Regulatory Commission and focuses on e-finance for individuals and SMEs. Local governments have been very supportive of the development of this sector because the financial services offered are well-aligned with key areas of financial market reforms. This will be a significant growth area of financial services in the coming years.
  • Riding high on the well-developed finance, high-tech, and logistics industries already established in Shenzhen, the economic development model in Qianhai is well positioned to foster the innovative companies and industries that emerge in China. Of course the preferential policies in Qianhai will play an important role in nurturing these new businesses, but their success will depend upon identifying market opportunities and exploiting them. As of end-May, the number of registered companies in Qianhai already reached 6,500, including 46 Fortune 500 companies, with 30 new companies registering each day.

    About the author
    Silvia Zeng is the Associate Director of Research for JLL in Guangzhou, China.

    Asset price inflation in real estate – a rational collective action problem?

    August 11th, 2014 by Megan Walters

    History tends to view a run up in asset prices as irrational bubbles, produced by illogical investors acting on psychological motivations, named animal spirits by Keynes. In real estate a rapid rise in asset prices can be viewed as a rational collective action problem, much like the tragedy of the commons or the paradox of thrift[1], and not the result of irrational investments.

    The question of asset pricing and whether bubbles – which can be defined as irrational price changes – can and do exist is at the forefront of public debate following the unusual monetary conditions that have occurred since the global financial crisis. For real estate an irrational price change would be a capital value rise in excess of the commensurate income stream rise- in short excessive yield compression.  Shifts in real estate asset prices are the result of cumulative actions of rational investor actions, even if the final result may look irrational.

    Tuplipmania is usually cited as the classic bubble based on irrational behaviour. The Economist ran an excellent article in October ‘13 on the Dutch tulip bulb bubble of 1637. (see the article here) This article which is based on a series of academic papers suggests that investors in the tulip bubble were acting rationally and that there was no ‘mania’ causing investors to act irrationally[2].

    This response can also be observed in the real estate market where shifts in rules or shifts in demand result in a sharp change in pricing. Real estate as an asset class comes in large lot sizes and is in general less liquid than, for example equity, bond or foreign exchange markets. This means that shifts in asset prices are more likely to be based on rational criteria compared frequently traded assets such as shares in a particular company.

    The resolution of such a collective action problem is first to gain agreement from the parties that their individual maximisation of value does not produce the optimal outcome for society, and second agree what measures need to be put in place to ensure cooperation.  In the tragedy of the commons, formal rules are put in place to conserve stocks or to implement private property rights.

    Solving other collective action problems is not as easy. Following the GFC, to prevent a collapse of aggregate demand the G 20 governments agreed to implement stimulus packages and ultra-low interest rates to keep demand above a point where economies could spiral downward into deflation. The steps taken were the solution to a paradox of thrift problem and in turn have created another collective action problem.

    Monetary conditions aimed at easing the paradox of thrift, have created conditions where real estate asset prices have held up; the result of a series of rational decisions- not irrational investment sentiment.

    About the author
    Dr Megan Walters is the Head of Research, JLL Asia Pacific Capital Markets.

    [1] The tragedy of the commons is where individuals act rationally in their own self-interest, however the outcome is contrary to the whole group’s long-term best interests by depleting some common resource. Paradox of thrift is where faced with an economic downturn people act rationally to save more money however then aggregate demand falls leading to a decrease in consumption and a worse economic position.  What is rational for the individual may appear irrational for the whole.

    [2] The academic papers argue that there had been a shift in regulations by the Dutch government in 1637 and that investors had each acted rationally in the light of the incentives and information at hand. The market for tulips was an efficient response to the changing financial regulations which meant that ….investors who had bought the right to buy tulips in the future, were no longer obliged to buy them. …The inevitable result was a huge increase in tulip option prices.