London’s properties are “over-valued” according to a leading bank.
UBS, which has what it calls a Global Real Estate Bubble Index, says Munich and Frankfurt top the league table of overheated city markets, with Paris and Amsterdam closely following suit.
Zurich, Toronto, and Hong Kong also display similar characteristics.
However UBS says that despite relatively weak price growth in the UK capital since the EU referendum in mid-2016 – prices are still 10 per cent behind their 2016 value – London “remains in overvalued territory but affordability issues, political uncertainty, and a tighter tax and regulatory environment are putting further pressure on house prices.”
UBS adds: “We expect foreign buyers to take advantage of the weaker pound and lower prices thus supporting the price level in the medium term.”
The bank’s index says there is global uncertainty in property markets now, for three main reasons.
First, house prices are a backward-looking economic indicator and are only able to reflect an economic downturn with a certain delay – once there’s a housing market problem, it’s often too late to do anything about it.
Second, the majority of potential buyers did not suffer direct income losses in the first half of 2020. Credit facilities for companies and short-time work schemes mitigated the fallout from the crisis, so the worst may still be to come.
Third, governments supported homeowners in many cities during the lockdown periods. Housing subsidies were increased, taxes lowered, and foreclosure procedures suspended.