Hong Kong has been ranked as the global city at the greatest risk of facing a housing bubble.
The UBS Global Real Estate Bubble Index 2018, found that Hong Kong currently has the world’s most overvalued housing market. The city has experienced years of soaring house prices, with prices rising by an annual rate of almost 10 per cent since 2012. However, the UBS report reveals that the Hong Kong property market is now highly susceptible to a swift downturn.
Bubble risk appears greatest in Hong Kong, followed by Munich, Toronto, Vancouver, London and Amsterdam.
Stockholm and Sydney moved out of bubble risk territory this year, while Geneva moved closer to fair value. Property markets in Boston, Singapore and Milan were ranked fairly valued, while Chicago was once again the only undervalued city in the report.
However, the report found that while most cities are overvalued prices are starting to decline.
In the past year, the house price boom in key cities lost intensity and scope. Inflation-adjusted city prices increased by 3.5 per cent on average over the last four quarters, considerably less than in previous years but still above the 10-year average.
They remained on an explosive uptrend in the largest Eurozone economic centres, as well as in Hong Kong or Vancouver. But the first cracks in the boom’s foundation have begun appearing: house prices declined in half of last year’s bubble risk cities – in London, Stockholm and Sydney by more than 5 per cent in real terms.
In contrast to the boom of the mid-2000s, no global evidence of excesses in lending and construction exists. Outstanding mortgage volumes are growing half as fast as in the run-up to the financial crisis, limiting economic damage from any price correction.
“Although many financial centres remain at risk of a housing bubble, we should not compare today’s situation with pre-crisis conditions,” said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management. “Nevertheless, investors should remain selective within housing markets in bubble risk territory such as Hong Kong, Toronto, and London.”
Article published 28th September 2018