With property prices surpassing local income levels, London is among the two global cities most in danger of a housing bubble, according to a report from Swiss financial firm UBS Group AG, reported Bloomberg.
In fact, the British capital is only behind Hong Kong in terms of the most expensive properties, with prices having shot up by 40 percent since January 2013, thanks to strong overseas buyer demand, high rental yields and robust population growth.
Price-to-income and price-to-rent ratios have also soared to all-time highs, even though real earnings have dropped by seven percent in London since 2007. “House prices have decoupled most from local incomes in Hong Kong, London, Paris, Singapore, New York and Tokyo,” said UBS economist Matthias Holzhey, adding that “buying a 60 sqm apartment exceeds the budget of most people who work even in the highly-skilled service sector”.
Given this situation, UK’s capital risks a “substantial price correction should the fundamentals for estate investment deteriorate”. Thus, UBS advises investors to be cautious on London properties.
Meanwhile, property prices in San Francisco, Vancouver, Sydney and Amsterdam are also substantially overvalued, based on UBS’ global real estate bubble index. Similarly, values in Paris, Geneva, Zurich and Frankfurt are stretched. On the other hand, those in New York and Boston are fair, while Chicago is undervalued.
Cheryl Marie Tay, Senior Journalist at PropertyGuru, edited this story. To contact her about this or other stories email cheryl@propertyguru.com.sg
