Global Property Bubble

There is no doubt that property valuations in many major cities are now in bubble territory. The reason I call it a bubble is that for people on even well above average earnings these Cities properties (London, New York, Hong Kong, Shanghai, Melboure, Sydney, Vancouver) are just unaffordable - even with the help of record low interest rates. The rise in prices has been driven by low interest rates, quantitative easing, a move of the population to the major cities and quite a lot of speculation. However, I think we are now pretty much close to the peak and as interest rates rise a lot of the most expensive properties are going to get hit big time. There is a nice article on WorldFinance making the point that rental yields are also very low, meaning property at today's prices is not going to be an attractive asset class.

Some interesting recent  research suggests that housing bubbles particularly when debt financed are more harmful when they burst than stockmarket bubbles. Also remember this - property is a very illiquid asset in a downturn - it's not like Apple (AAPL) shares which you can dispose of at a click of the button on your computer.

Housing bubbles could be coming, and these four cities will be hit worst…
By Jules Gray
Thursday, July 16th, 2015

Many of the world’s leading cities are experiencing soaring property prices. Something must be done to avoid another unsustainable real estate crash

Owning your own home tends to be most people’s main aspiration. The security – both financial and psychological – that comes from owning a property means that it is the first thing that people look to buy when their careers start taking off. However, with a soaring global population and an increasing shift towards city living, many of the world’s working population are finding getting on the property ladder a financially unrealistic proposition.

Sky-high demand for property and not enough space to build in many of the world’s major cities is meaning many people are being priced out of the market. At the same time, property markets have become a far more stable investment that others in recent years, with real estate in cities like London proving more resilient to market changes than traditionally low risk investments like government bonds. This has in turn pushed prices up, as investors pour money into property with little intention of actually living in the properties, therefore taking homes out of the market for potential homebuyers.

Calm before the storm
While investors have enjoyed strong returns on their property portfolios in recent years, there are growing fears among observers that a global property bubble is getting out of hand. Were it to burst, a huge amount of money will be lost, which could in turn send shockwaves through many developed economies that are only just getting to grips with the downturn over the last seven years.

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