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London and Hong Kong at high risk of house price crashes, says UBS

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  • 30/10/2015
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London and Hong Kong at high risk of house price crashes, says UBS
London and Hong Kong are the cities with house prices most likely to face another property price crash, says investment bank UBS, but crucially doesn’t offer a timescale adding that it can’t be proven conclusively until it bursts.

However, its new Global Real Estate Bubble index confirms house prices have far outstripped affordability in twelve urban centres around the world, but said London and Hong Kong face the greatest risks, including a ‘dangerous dependence on low interest rates.’

UBS said the term bubble refers to a substantial and sustained mis-pricing of an asset.

Matthias Holzhey, economist at UBS CIO WM, said: “House prices have decoupled most from local incomes in Hong Kong, London, Paris, Singapore, New York and Tokyo, where buying a 60-square-meter apartment exceeds the budget of most people who work even in the highly skilled service sector.”

It said property costs in many global cities have doubled since 1998 in real terms and said the markets in most cities including are overvalued including Sydney, Vancouver, San Francisco and Amsterdam.
Valuations are also stretched in Geneva, Zurich, Paris, Frankfurt and, to a lesser degree, Tokyo and Singapore, according to the report. The US cities of New York and Boston are fair-valued relative to their own history, while Chicago is undervalued, it said.

Claudio Saputelli, head global real estate in UBS CIO WM, said: “A mix of optimistic expectations, favorable economic fundamentals and capital inflows from abroad has caused valuations to soar in certain cities in recent years. Loose monetary policy has prevented a normalization of housing markets and encouraged local bubble risks to grow.”

“It is essential to identify the signs of a bubble early on – that’s why we have launched the UBS Global Real Estate Bubble Index,” said Saputelli.

Jonathan Harris, director of Anderson Harris, thinks these fears are overstated.

He said said London property prices may continue to rise but talk of a bubble that is going to burst seem unrealistic.

“The double-digit growth we saw a few months ago has all but gone and growth is more moderate, which is welcome as this should be more sustainable. It is also worth remembering that the London property market is not a single whole but made up of many different facets with prime central London slowing down while other boroughs such as Newham, continue to see greater growth.

“While no-one knows exactly what will happen with property prices we do know that London is attractive as a place to buy because it is where many people work and property tends to do well. Renting is expensive so why not invest in property if you can? The population is growing and not enough property is being built – this in itself will help support prices. Even if there is a correction, many people have made a lot of money out of property, so it needs to be put into perspective.”

 

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