The 5 biggest property bubble markets

It is only natural that investment floods into an attractive market. If this causes prices to skyrocket, more investors will want a slice of the action, and this can cause a market to overheat. When prices reach levels totally unjustified by the fundamentals, this is what we call a bubble.

We have experienced property market bubbles before, for example in Japan in the late-1980s and the US in 2007, and we fear that currently a number of countries are caught up in the kind of property fever that could result in a bubble.

Below, we rank the five countries that appear in danger of suffering a property bubble, in reverse order of expected return on property investment – because a rise in property prices on the back of an excessive influx of funds into the market induces a fall in investment return.

In other words, we contend that the lower the investment return the more likely a country is to suffer a property bubble. Our ranking is based on the gross rate of return (property rental value/purchase price) for the 87 countries covered by Global Property Guide. Below is the reverse order ranking.

 

5 – Japan, Tokyo, property ROI 2.66%

This ranking might not come as any surprise. Some observers have argued that following the sharp rise in property prices in the Greater Tokyo Area triggered by the awarding of the 2020 Olympics to the city, the return on property investment in Japan is already less attractive than it was. But, on a global view, the recent rise might prove only to be the beginning.

 

4 – Israel, property ROI 2.54%

Israel is a major technology hub in the Middle East, with roughly 40% of its population living in its biggest city, Tel Aviv. Property prices have skyrocketed, perhaps because preferential treatment for home buyers overstimulated the market, leading to popular discontent and large-scale demonstrations.

 

3 – Singapore, property ROI 2.54%

The absence of inheritance tax has been attracting the global wealthy elite to move to Singapore. With the costs incurred on property transactions also low, the volume of real estate investment transactions has been growing since around 2009. Whilst the property market currently seems less overheated than before, prices remain very high.

 

2 – Austria, property ROI 2.18%

Monetary easing (including a low interest rate policy) by the ECB (European Central Bank) in the wake of the Lehman collapse and economic downturn in southern Europe has made it easier to obtain housing loans, driving a sharp rise in property prices in Austria, and particularly its capital Vienna. Property prices rose almost 40% between 2007 and 2013, the sharpest rise in the Eurozone.

 

1 – Taiwan, property ROI 1.57%

Source: Shutterstock

Taiwanese property prices have risen preternaturally fast, driven by a sudden influx of funds when controls on property investment by mainland Chinese were abolished in 2002, and the fact that the population density is around twice that of Japan. Prices in Taipei and New Taipei have remained flat since 2013 but nevertheless continue to seem extremely overvalued compared to other countries’ property prices.

(By ZUU)

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