Australia knocks Spain off top spot in most-overvalued league table

The Australian property market is now the most over-valued in the world according to new data from the Economist.

According to the data, which compares price to earning ratios of property markets in 19 countries, Australia is now 56% overvalued compared to long term averages.

By contrast, Spain, which topped the table last quarter is only 43% overvalued. Both Hong Kong (53%) and France (48%) are frothier markets, according to the figures.

As we discussed in January, although the data provides an interesting gauge of how frothy certain markets are, the research makes the assumption that property can be treated like shares which does not necessarily hold true.

Property is not merely an investment asset class, it is a place to live so demand is determined to a great extent by affordability (monthly repayments) which is driven by interest rates which will arguably stay low in most countries for the forseeable future. Lower long-term interest rates also justify lower rental yields from an investment perspective.
House price data in certain countries does reflect the actual prices that property is selling for. In Spain for example, data reflects asking not actual sale prices

In the long run we’re all dead

As well as problems with the methodology, the figures are arguably of little practical use as property markets often remain overvalued for long periods of time - a time when agents and developers can make life changing money.

According to the Economist, there are over 30,000 agents’ workings in Hong Kong today, up 40% from 2009. The more established agents will arguably be making the kind of the money the best overseas property companies did in the boom years in the UK and Spain.

The trick is not to avoid markets which are overvalued but to try and make hay when the sun shines and get out before the market implodes.

Easier said that done but keeping an eye on white elephant projects seems as reliable a marker as any.

Most over and under-valued markets (percentages)

Country	Latest	Q4 2009	1997-2011	Under(-) / Over(+) valued
Australia	5.8	13.9	215	56.4
Hong Kong	20.1	23.1	-1	53.7
France	8.6	-4.4	152	48
Spain	-3.5	-6.3	157	43.7
Sweden	5.2	7.1	175	39.5
Britain	-1.1	3.5	178	29.6
Belgium	6	1	164	23.7
Netherlands	1.7	-1.6	90	20.8
New Zealand	0.9	5.2	111	20.6
Ireland	-10.8	-18.5	118	19.9
Singapore	17.6	1.8	21	18.1
Denmark	2.7	-5.1	98	17.6
China	6.4	5.8	na	12.9
Canada	2.4	-1.2	69	11.4
United States (FHFA)	-1.3	-4.3	70	10.2
Italy	-1.6	-4.1	93	8.7
Switzerland	4.2	6.2	37	5.5
United States (Case-Shiller ten-city index)	-1.2	-4.5	95	3
South Africa	2.9	4.9	421	na
United States (Case-Shiller national index)	-4.1	-2.4	56	-7.7
Germany	2.6	-3.7	na	-12.2
Japan	-3.6	-4	-38	-35.2