Words: Ashley Rigg
Published: 14th January 2010
The world’s most overvalued residential housing markets
The Economist magazine recently put together an interesting comparison of global residential house prices. Using a combination of national house price data and information about average rental rates, the research calculates the average price-to-earnings (p/e) ratio of residential property in 19 countries throughout the world and compares them to their long term averages.
The data provides an interesting gauge of how bubbly certain markets are and gives some indication of where further price falls are likely over the longer term. Despite recent positive news on many popular overseas property markets and
portals reporting record enquiry levels , the data suggests we should approach the future with a little more caution.
The research makes the assumption that property can be treated like shares; that is that homebuyers are overpaying for property when the price-to-rents ratio is higher than average. However there are a number of serious flaws with this approach:
- 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.
- Rental rates can also be artificially depressed by government regulation as happens in Spain with ridiculous rental laws
Despite the flaws in with the research, the table provides interesting reading and strengthens the argument that despite recent price rises, a double dip is not out of the question in many countries.
Whatever, happens it may be a long time before we return to the overseas property market of the early and mid-noughties. As we wrote last week, the most sensible global forecast is that
2010 will be the year of prime
| |
& change on
a year earlier
|
Price change %
1997-2009* |
Under (-) /
over (+) valued
|
| Spain |
-8.0 |
167 |
+55.1 |
Hong Kong
|
13.9 |
-20 |
+52.9 |
| Australia |
6.2 |
181 |
+50.0 |
| France |
-8.0 |
132 |
+39.8 |
| Sweden |
-0.4 |
152
|
+34.7 |
| Ireland |
-13.9 |
159 |
+29.8 |
| Britain |
2.7
|
175 |
+28.8 |
| Netherlands |
-7.1 |
87 |
+21.2 |
| Canada |
-2.1 |
65 |
+20.6 |
| Denmark |
-16.4 |
89 |
+18.4 |
| Italy |
-4.1 |
96 |
+15.0 |
| China |
8.0
|
na |
+2.2 |
United States
|
-8.9 |
64 |
-3.1 |
| Switzerland |
4.1 |
28 |
-9.0 |
Germany
|
-3.9 |
na |
-15.2 |
| Japan |
-4.0 |
-36 |
-33.7 |
New Zealand
|
1.0 |
101 |
na |
South Africa
|
4.8 |
418 |
na |
| Singapore |
-11.0 |
-4 |
na |
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User Comments
Good article, but a little irrelevant, as the sales prices are the true value after all. Spain for instance is now seeing the banks providing more ethical lending and valuations from previous being ignored. The banks policy now is for buyers to show the colour of their money, so the 100% borrowing via LTVs are becoming a thing of the past.
I think Spain could see a significant drop with re-evaluations taking place. But when it comes to valuation, Spain has always been overpriced along with Cyprus.
My prediction for 2010 in most overseas markets is valuation will become more releastic, and confident lending at higher percentage will become more prevalent towards 3rd and 4th quarters.
Confidence will creep back towards the end of the year, so we are still in a very difficult period for quite a while..
Mark Fiddes,
Millionaire Investments