The report says that cities near the bubble risk zone face a higher risk of a large price correction if a change in “macroeconomic momentum, a shift in investor sentiment or a major supply increase” occurs.
Advertisement
Economists at UBS warned inflated prices are a bubble at risk of bursting with prices bearing no relation to incomes.
Average real dwelling prices have soared by nearly 40% since the beginning of 2013, more than offsetting all losses triggered by the financial crisis.
The UBS Global Real Estate Bubble Index, which launched this week, puts Vancouver at No. 4 behind London and Hong Kong, and just a shade behind Sydney.
It said: “Domestic buyers too have contributed to the appreciation”.
It said the bubble has been fuelled by foreign demand from investors seeking safe-havens, the Government’s Help to Buy scheme and “alluring yields” on buy-to-let investments.
With sluggish wage growth the price increases have made London one of the most expensive cities in the world based on price-to-income and price-to-rent ratios, the UBS report said. “Buying a 60-square-metre apartment exceeds the budget of most people who work even in the highly-skilled service sector”.
House prices were also deemed to have become detached from incomes in Paris, Singapore, New York and Tokyo.
However, London with an index score of more than 1.5 was judged to be the most overvalued property market.
“Loose monetary policy has prevented a normalisation of housing markets and encouraged local bubble risks to grow”. The USA cities of New York and Boston are fair-valued relative to their own history, while Chicago is undervalued.
Looking at global financial centres is an interesting way to judge like-for-like, in the way that the head of the RBA’s financial stability department Luci Ellis often discusses Australian property prices in comparison with similar cities all over the world.
Of the 15 cities examined in the UBS study – including, amongst others, Sydney, New York and Geneva – 12 were considered to be either overvalued or at risk of a bubble. “While it is not always possible to prove conclusively the existence of a bubble, it remains essential to identify the signs of one early on”.
Official data out this week revealed that the price of an average London home hit £500,000 for the first time.
Advertisement
“The Sydney market is influenced by strong Asian demand and as such any deterioration in Asian economic fundamentals leading to lower demand for Sydney property increases the risk of a significant correction in the medium term”. Mr Khan has gone further saying the bill will be catastrophic for the capital as it will lead to a big reduction in affordable housing.
