Are there still opportunities in global property?

The worldwide housing bull market is on its last legs. But not all countries are equally vulnerable to a downturn. Sarah Moore surveys two that are still worth a look; elsewhere, Jonathan Compton highlights two in big trouble.
In February 2018 the Emperor Group in Hong Kong unveiled a rather clinically named property development. “The Unit” comprised a block of 68 serviced apartments. Sixty-four of these were “nano” flats with floor areas as small as 91 sq ft – about the size of two king-size beds. But despite the tiny floor plans and rents of £1,100 per month, nearly all of the flats were occupied within a few months.
It’s not just Hong Kong. Absurdly expensive housing markets have become a global phenomenon. A decade of record low interest rates has fuelled massive house-price growth from the UK to Australia. These days, “homes in the posher parts of global cities move in sync because they have become a distinct asset class”, as Buttonwood puts it in The Economist. A global market of buyers made up of rich individuals from both developing and emerging markets, investment trusts and private-equity firms have snapped them up, driving up the prices of smaller properties nearby. Chinese investors in particular have been a key driver behind booms in Sydney and Vancouver, for instance.
The global tide is going out
But the global property boom is now going into reverse. Global interest rates bottomed in 2016. Central banks are now either removing stimulus or actively tightening monetary policy (as in the US). This raises the cost of mortgages and crimps affordability, making overvalued markets more vulnerable to reversals. House prices relative to incomes are 73% and 48% above the long-term average in Auckland and Sydney respectively, for instance, says Buttonwood. As local residents have been priced out, governments have begun to tighten lending standards and to tax property more aggressively – witness Britain’s 12% top rate of stamp duty. They are also increasingly asking awkward questions about where people’s money comes from, and with good reason. According to Canada’s Global News, more than 10% of 2016 property sales in one area of Vancouver were “tied to buyers with criminal records”.

“House prices in Hong Kong have gained 10% a year since 2012; apartment prices have tripled in a decade”

Hong Kong, which took the top spot in investment bank UBS’s latest Global Real Estate Bubble Index, now appears to be heading for a bear market. House prices in Hong Kong have gone up by 10% a year on average since 2012, according to UBS. Apartment prices have tripled in a decade. But now one house price index is down by 5% from its August peak, says Jacky Wong in The Wall Street Journal. Buyers from the mainland are cutting back as Chinese growth decelerates; sales at luxury watchmaker Richemont have slowed. Banks in Hong Kong are “aggressively cutting property valuations as the city’s housing market weakens, threatening to fuel a downward spiral in prices”, according to brokerage CLSA, quoted on Bloomberg – the risk is that lower valuations mean less lending, which in turn will hit prices. All of this describes a classic housing-market slump. But not all foreign markets look poised to follow the world’s most overheated into a downturn. Here are two that still offer opportunity.

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