All around the world, property prices are over-valued. The bubble will burst and it will get ugly. The state of the housing market in the United States is a lesson that no one seems to be learning from.
As reported in The Economist, property prices in Australia are more than 56% over valued making it the most over-valued property market in the world. In Hong Kong, where even the real estate agents are squeezed for space, properties are more than 53% overvalued. Indeed, in Hong Kong and Singapore, the property market more overvalued than it was before the global economic downturn began in the third quarter of 2007. The Asian property bubble, which includes Australia, could cause a lot of damage to the global economy.
Most people think that property is a really safe investment. The reality is it's probably the most dangerous. According to The Economist, it's a case of bricks and slaughter.
Property is dangerous because as an asset class, it's just so large. It also involves massive amounts of debt (people don't usually borrow to buy shares, they do when they are buying property). Unlike shares, buying property is usually an emotional investment, which means there's always some hubris and myopia in there. Also, property defies all the laws of supply and demand. When the price goes up, it's a signal for others to buy in. Speculation in property is a bit like sex. People who have lots of sex are thought to live life with gusto which means more peope want to try it themselves.
Memories are short and people don't seem to take the lessons on board at all.
The problem is largely confined to the property bubble in the Asia-Pacific region, particularly in China where there are 64 million empty housing units.
When the Asian property bubble bursts, it will drag down the global economy.
LTV ratio for property in Hong Kong very low. Another ‘the world is ending soon’ article.