London at 'greatest risk' of property bubble

Published by Tom Wilson on 30 October 2015.
Last updated on 30 October 2015

Notting hill

London has the world’s most overvalued property market and it is at risk of a ‘substantial price correction’ according to a new report from Swiss banking giant UBS.
The ‘Global real estate bubble index’, which tracked 15 global cities, found a skilled service worker in London would have to work for 14 years to afford a 60 square metre flat (650 square feet), second only to Hong Kong where it would take over 20 years.
London’s residential property prices have soared by 40% since the beginning of 2013, more than offsetting the losses triggered by the financial crash. Prices in London are 6% above their previous peak in 2007, while prices in the rest of the country have fallen by 18%.
While property prices have sharply increased, real-term earnings have fallen by 7%, taking price-to-earnings ratios to new heights.
Claudio Saputelli, UBS head of global real estate, said: "A mix of optimistic expectations, favourable economic fundamentals and capital inflows from abroad has caused valuations to soar in certain cities in recent years. Loose monetary policy has prevented a normalization of housing markets and encouraged local bubble risks to grow."
London’s property prices have attracted global investors looking for a safe haven for their wealth, while domestic demand has been fuelled by the help-to-buy scheme, attractive buy-to-let yields and population growth, according to UBS.
Hong Kong was the only other city described as a ‘bubble risk’ in the report. Though it would take a worker a longer period to buy a property, average price-to-earnings ratios in the city have historically been higher.

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