Bubbles grow in global property markets as house prices continue to rise

House prices grew by 6% in the year to mid-2021 in 25 global cities, with the German property market in particular showing signs of overheating.

Inflation-adjusted house prices grew by 6% in the year to mid-2021 across the 25 global cities analysed by the latest UBS Global Real Estate Bubble index. Plummeting borrowing costs and the demand for extra space created by the shift towards working from home have helped drive the rally. Closed offices and entertainment venues are also denting the appeal of cities. “For the first time since the 1990s, housing prices in non-urban areas have increased faster than in cities.” 

The 2008 financial crisis was caused by an overheated US housing market, but today America looks in much healthier shape, say Robert Armstrong and Ethan Wu in the Financial Times. While prices have soared over the past year, “mortgage-delinquency rates are parked near historical lows”. Low interest rates are keeping mortgages affordable.  

Instead, UBS finds that Frankfurt, Toronto and Hong Kong are the cities most at risk of a bubble. The report compares prices to data on local incomes and rents and looks for signs of excessive lending and construction activity to determine the risk of a bubble. London is rated as “overvalued”, but is not in bubble territory.  

Germany, where both Frankfurt and Munich make the top five in the bubble index, shows particular signs of overheating. It is historically a nation of renters, says Andreas Wagner in The Sunday Times, with a homeownership rate of 43%, compared to 65% in the UK. Pro-tenant laws and high transaction costs mean many see little point in buying. Yet rising prices are prompting people to bet on bricks and mortar: the average price per square metre in Berlin has risen from €1,750 to €5,150 in ten years. Young Germans sound British as they talk of getting on the “property ladder”.

Back to the office  

London’s office market has turned a corner, says Tom Howard in The Times. Property agent Cushman & Wakefield reports that firms leased 2.77 million square feet of office space in the capital during the third quarter, a 54% jump on the amount rented during the previous three months. There has been especially strong demand from media and technology businesses. The data pours “cold water on the idea” that the pandemic heralded the end of the city-centre office. 

Facebook is one of the bigger tenants to have signed a new London lease of late, says Carol Ryan in The Wall Street Journal. After delaying new office decisions because of lockdowns, more businesses are taking the plunge. Uncertainty after the 2016 referendum slowed the building of new office blocks in London, so supply is tight. London-focused real estate investment trusts (reits) are cashing in. In New York, however, a “building glut” means office developers face a tougher period ahead.

Recommended

Why the cost of living crisis could be a boon for this cheap retailer
Retail stocks

Why the cost of living crisis could be a boon for this cheap retailer

Like many retailers, B&M is facing the dual headwinds of lower sales and higher costs as inflation bites. But its business model has proved hugely suc…
29 Jun 2022
The ten highest dividend yields on Aim
Income investing

The ten highest dividend yields on Aim

Rupert Hargreaves picks the highest-paying dividend stocks on Aim, London’s junior market for small and medium-sized growth companies.
29 Jun 2022
The best cash Isas on the market now
Cash ISAs

The best cash Isas on the market now

With high inflation, low interest rates, and declining tax benefits, cash Isas are less popular than they were. But don’t dismiss them just yet, says …
29 Jun 2022
The best cash Isas on the market now
Cash ISAs

The best cash Isas on the market now

With high inflation, low interest rates, and declining tax benefits, cash Isas are less popular than they were. But don’t dismiss them just yet, says …
29 Jun 2022

Most Popular

Market crash: have we hit bottom or is there worse to come?
Stockmarkets

Market crash: have we hit bottom or is there worse to come?

For a little while, markets looked like they were about to embark on a full-on crash. And that could still happen, says Dominic Frisby. Today, he look…
27 Jun 2022
Prepare your portfolio for recession
Investment strategy

Prepare your portfolio for recession

A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, sa…
27 Jun 2022
Interest rates are rising, here are the best savings accounts on the market
Savings

Interest rates are rising, here are the best savings accounts on the market

With inflation at more than 9%, your savings are not going to keep pace with the rising cost of living. But you can at least slow the rate at which yo…
24 Jun 2022