As Singapore becomes more attractively valued Hong Kong's residential bubble risk increases.
The latest UBS Global Real Estate Bubble Index 2017 report analyzes residential property prices in 20 select urban areas around the world. Within the Asia Pacific region, Hong Kong and Sydney's bubble risks have risen since last year.
Singapore remains fairly valued, with diminishing risks, while Tokyo has grown more overvalued in 2017. Globally Toronto faces the greatest risk of a housing bubble, followed in descending order by Stockholm, Munich, Vancouver, Sydney, London, Hong Kong, and Amsterdam.
Hot Hong Kong
In Hong Kong, residential market prices reached an all-time peak in midyear. The city features the worst housing affordability of all financial centers. «The dependence on sentiment and the possibility of regulatory tightening make the long-term outlook highly uncertain,» said Claudio Saputelli, head of Global Real Estate for UBS Wealth Management's Chief Investment Office.
By contrast, Singapore has cooled down its housing market via a variety of regulatory measures. For six years now, real prices have been falling modestly and are now 18 percent lower than at the previous peak in 2011. The housing market has dropped back to fair valuation levels, with risks declining in 2017 compared with last year. A housing market turnaround seems to be in the cards.
The Olympic Effect
Tokyo’s housing market continues to decouple from the rest of Japan. Since 2012 real prices in the capital are up 25 percent, while they are down 10 percent nationwide.
Low interest rates are sustaining the local boom, but housing is becoming increasingly unaffordable as income growth lags behind. The expected long-term decline in population also limits the upside.
