Saturday, April 2, 2011

Hong Kong, Australia Property prices overvalued says The Economist

When a housing bubble bursts, people who think prices will indefinitely go to moon tend to behave like there was no clue before the price burst signaling a bubble. But actually there are signs for those who want to see, but since a lot of professionals depend on this highly unrealistic dream of indefinite price rise, it needs some research before finding them.

Let's look at the article by The Economist named In come the waves. There they said "The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops". This article is dated 2005 and clearly predicts what has happened in the coming years! I highly recommend you to read the article as a lesson. Also note that in this article they talk based on numbers and good indicators. Since they have predicted the future in the past with their indices, it always worths to look at their numbers to forecast the future.

The Economist uses the long term house price to rent ratio to understand how overvalued or undervalued the property prices are in 20 economies. They look at the percentage difference between the current price to rent ratio and the long term price to rent ratio. Their article in 2005 was based on this figures and let's look at what are the figures saying now:

The Economist House price indicator Source: The Economist

"But whatever those 31,000 agents say, Hong Kong homes are not a good deal, according to our latest global house-price index ... In Hong Kong, that ratio is now almost 54% above its long-run average—and it is still rising.

Hong Kong’s price rises are the steepest in our index but it is not the most overvalued housing market. That honour remains with Australia, which is overvalued by about 56%. "
The Economist Hong Kong phew-whee

There are also other interesting figures in this price indicator. For example, although the house prices crashed in Spain, the price indicator shows that the properties are still 43 percent higher. USA looks mostly corrected and now only 3 percent overvalued.

Singapore looks 18 percent overvalued based on this price indicator. The difference  between Hong Kong and Singapore signals that if we did not have property cooling measures in Singapore, we would also be in more unrealistic region soon. Still the danger is not over since mainland Chinese buyers who inflated Hong Kong and looks dangerously eager to create a Chinese version of Japanese Property bubble are coming to Singapore more and more and now are the biggest group of foreigners buying property here. With the interest rates in the coming months they will be a significant driver in property prices both in Singapore and Hong Kong. 

This blog article is to provide general information only and should not be treated as an invitation to buy or sell any property or as sales material.  Users of this report should consider this report as a one of the many factors in making their investment decision. Users should make reference to other sources of information and specific investment advice to obtain a more objective view of the property market. Asia Singapore shall not be responsible for losses suffered.

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