27 September, Milano Finanza
Milan is at the bottom of the global chart of real estate markets. Property prices, net of inflation, are still 30% below the peak prices registered in 2007, making of Milan the second most underestimated property market among the developed countries. The picture emerges from the report “Ubs Global Real Estate Bubble Index 2018” by the chief investment office of Ubs Global Wealth Management which analyses the prices of the residential properties in 20 markets of the developed economies worldwide.
It emerges that in Milan, the only Italian city included in the report, prices started to moderately rise in the city centre and the nearby areas, and the time to sell a property has significantly reduced. But the values net of inflation are still 30% below the peak of 2007. Despite the favourable conditions offered by loans and the higher economic accessibility of Europe, the recovery of the property market has just started. However, as the report reads, “without a more predictable political situation and an acceleration in the growth of population, we’re not expecting a sharp increase in the demand”.
While Milan is the most convenient city, Hong Kong has the highest risk of a property bubble, followed by Munich, Toronto, Vancouver, Amsterdam and London. The markets of Stockholm, Paris, San Francisco, Frankfurt and Sydney also show a great disbalance. Prices are high in Los Angeles, Zurich, Tokyo, Geneva and New York. On the contrary, prices in Boston, Singapore and Milan seem reasonable, while Chicago is the most underrated market.
Unlike the boom of the mid-00es, there are no excesses for what concerns mortgages and construction on a global scale. In terms of volumes, mortgages have been growing at half the pace registered in the phase before the financial crisis. This implies a reduction of the possible economic damages caused by a price adjustment.
“Although many financial centres are at risk of a property bubble, the current situation can’t be compared with that of the period before the crisis”, commented Mark Haefele, Chief Investment Officer for Ubs Global Wealth Management. “However, we recommend being selective when operating in those real estate markets at risk of bubble such as Hong Kong, Toronto and London”.
Meanwhile, “the total average returns of property investments in the main financial centres of the developed markets have been set at 10% p.a. in the last five years, providing returns from the lease and profits from the price increase”, explained Claudio Saputelli, head of real estate of the chief investment office of Ubs Global Wealth Management. He also added: “there are some doubts nowadays regarding the returns in the upcoming years. We recommend using caution when buying residential properties in the main cities of the developed markets”.
Over the course of 2018, the boom of houses in the main cities has reduced in terms of extension and intensity. In the last four quarters, property prices in the cities net of inflation have raised on average by 3.5%, a pace definitely slower in comparison with that of the past, but still higher than the decade’s average. Prices have continued to increase in the main cities of the Eurozone, in Hong Kong and Vancouver. At the same time, we’ve seen how prices have decreased in the cities that were at risk of property bubble last year, by over 5% in the case of London, Stockholm and Sydney.
Accessibility impacts the outlook. The price/average income ratio in the cities considered in the report has reached 7.5 from 5.5 in 2008. Many families can’t afford to buy a house in the main financial centres. While prices have become too high for the people, integrative regulations have been introduced in almost all the cities in the last five years. These can be stamp duties or measures to control rents. Ubs warns that such regulations, together with a worsening of the conditions to access funding, might stop the real estate boom, as it happened in Sidney. On the overall, the difficulties to buy a property is an obstacle to growth on the long-term, and it might induce investors to review their expectations concerning the future earnings in capital account.
Source: Milano Finanza
Translator: Cristina Ambrosi