London house prices most overvalued in the world
A Swiss bank is warning that property values in London could fall by 30% within three years.
UBS says the London market has formed the biggest house price bubble in the world.
Its Global Real Estate Bubble Index examined 15 cities around the world, including Hong Kong, Sydney, New York, San Francisco and Geneva, examining prices against the economic backdrop in each country.
It found London was less affordable for locals who wanted to buy than any city except Hong Kong, and that it was at most risk of prices falling.
London rated 1.88 on UBS’s bubble index. The report says that whenever the index has exceeded 1.0 between 1985 and 2009 “a real price correction of on average 30% began within three years 95% of the time”.
The bank adds that any city scoring more than 1.5 is at risk of a bubble. It says that London house prices have become more decoupled from household earnings than anywhere else in the world.
After adjusting for inflation, house prices in London have soared by almost 40% since the beginning of 2013, according to UBS, and in real terms property values in the city are 6% above their 2007 peak.
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Image credit: Jack Torcello