Brexit or not, London realty is in bubble zone
Vancouver is the real estate market most at risk of over-inflating, UBS study reveals
The Brexit could turn out to be a saviour for London’s property market, going by the Swiss banking giant UBS’s latest expectations of global real estate markets.
London is one of the six cities that UBS warns of being in in a bubble risk zone.
Vancouver was rated as the top risk among property markets worldwide, with the others being Stockholm, Sydney, Munich and Hong Kong,
“House prices of the cities within the bubble risk zone have increased by almost 50 per cent on average since 2011,” the UBS report says.
“The discrepancies have emerged out of a mix of optimistic expectations, capital inflows from abroad and loose monetary policy. The weak economic foundations of the latest price boom make the housing markets in those cities vulnerable.
Change in momentum
“A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a rapid decline in house prices. Investors in overvalued markets should not expect real price appreciation in the medium to long run.”
Outside of these cities, the housing markets in San Francisco and Amsterdam are also overvalued.
“Valuations are also stretched, but to a lesser degree in Zurich, Paris, Geneva, Tokyo and Frankfurt,” the report adds. ”In contrast, Singapore, Boston, New York and Milan are fairly valued, while Chicago’s housing market remains under-valued relative to its own history.”
According to UBS, all of the main-line European cities have overvalued real estate sectors, with the sole exception being that of Milan’s.
“The economic weakness of the Eurozone is simultaneously forcing the other EU countries and Switzerland to pursue a supportive monetary policy,” the report finds. “Yet buying a house in countries with an uncertain economic outlook is a high-risk option and banks only grant loans restrictively, with the result that the low interest rates only have a limited effect.”
Buying a property — even a 60 square metre apartment — in the major league cities is becoming less and less accessible for even those in the highly skilled service sector.
“In Hong Kong, even those who earn twice the average income would struggle to afford an apartment of that size,” the report states.
“House prices have also decoupled from local incomes in London, Paris, Singapore, New York and Tokyo, where price-toincome multiples exceed 10.”