Why can’t you place property around the world in the same bag [Educational]

25 October 2021

Bubbles in property around the world usually come through a mixture of low-interest rates, credit supply, and a gap between supply meeting demand. It is further perpetuated by hubris, relaxed government measures, speculation, and the famous ‘FOMO’ (fear-of-missing-out).

A key thing to remember is that property here in Australia or property around the world shouldn’t be treated as the same or even comparable to other asset classes. Despite being influenced by the same factors mentioned above, the property remains an illiquid, immovable, tangible, non-duplicate asset with high barriers to entry. This means that it is not easily converted to cash, you can’t take it with you, you can touch it, feel it and live in it, and no two properties are the same.

Property around the world is subject to different legal rights, protections, and culture. Therefore what happened or what may happen in those countries can be taken as a cautionary tale but by no means a mirror to the Australian market.

Price Growth of property around the world

A trend from the pandemic has been the surge in house prices across the world. In Sweden house prices jumped 17% within the year with a record number of houses being sold. Household indebtedness has grown to 190% of gross disposable income and the median house price in Stockholm sits at AUD$942,359. In New Zealand, the median house price is AUD$1.09 million. The Kiwi market saw an increase of 31% over the year to July. In Canada, house prices have increased about 25% since the pandemic began. The Canadian Real Estate Associations MLS system does not specify the type of average used in its statistics. It states that the average national price is AUD$775,750.

In Australia, the median house price is $955,927 with an annual increase of 18.8%. According to the Bloomberg Economics Global Rankings, when compared with property around the world. Australia only takes the 15th spot and is considered ‘overvalued’ but not a bubble. The biggest bubbles were in New Zealand, Canada, and Sweden. The rankings were established through analysis of home price to rent ratio, price to income ratio, price growth, and growth in home loans. How did we only get 15th when compared with other property around the world?

Bubbles around the world

The metrics that were chosen to develop the ‘bubble rank’ only take on comparable metrics which show how similar each market is, but fails to show the metrics of how different each housing market is and probably a more influential indicator of price growth. How is the tax treatment of property in Sweden, New Zealand, and Canada? How is the net migration of each nation? What are the personal tax rates that impact the disposable income of its citizens? What are the lending criteria in that country? The lifestyle of the country? Are there secure property rights with a firm rule of law and low corruption?

Despite these gaps, the ‘bubbles’ ranked in the study, pale in comparison to the mother of all bubbles. The Japanese house price bubble and the economic implications that entailed is a cautionary tale for all with respect to credit availability, delay economic responses, and hubris.

Japan’s cautionary tale

During the 1980s, property prices in Japan increased between 6 to 7 times. Japan’s post-war economic miracle encouraged Japanese corporations flooded with cheap money to make large international property purchases. The Yen appreciated against the US dollar which led to a loosening of interest rates adding fuel to the fire. The corporate tax rate dropped from 42% to 30%, the top marginal income tax rate dropped from 70% to 40%. At the peak of the frenzy, the Imperial Palace was valued higher than all the property in the state of California. The ritzy neighbourhood of Ginza 4 Chome was being traded at $750,000 per square metre.

The subsequent bursting of that bubble led to a dark period known as ‘the lost decade.’ A period of stagnation or low economic growth. By attempting to control an already out-of-control behemoth, they unintentionally cause it to burst through a combination of restricting the availability of credit and increasing interest rates.

Japan’s interest rates have declined since 1990 and have remained close to 0 since around 1996.

Will this happen again somewhere else? probably yes, but when? Who knows

Alexander Gibson

Do you have problems with property?

Recent Articles

Widen your understanding with these articles

The Ultimate Guide On How To Add Value To Your Property: Expert Tips

Are you a homeowner looking to boost the value of your property? Look no further! In this comprehensive guide, we will provide you with expert tips and strategies to increase the value of your property. Whether you are planning to sell in the near future or simply want to enhance the market worth of your home, this guide has got you covered.

How Make An Offer On A Property (NSW)

Sick of auctions? How to make an offer on a property that is irresistible to the vendor

Do real estate agents have to disclose deaths

This tells you once and for all what real estate agent have to disclose in regard to death and the sale of property

Complete Guide: The hidden costs to buy a house

A complete guide to the costs of purchasing property

Do real estate agents lie about other ‘offers’?

Real Estate Agents are always under scrutiny in their day-to-day dealings. This is because of the nature of their industry, the stakes are at their highest. We are talking about the biggest asset purchase or sale in both the vendor’s and buyer’s lives. We are talking about risking their own money and debt. There is only one property available and there can be only one winner and everyone else is the loser. There are no prizes for coming in second.

Should I Buy or Sell First?

Should I Buy or Sell? The answer lies with you and your circumstances

What is a buyers agent

A buyers agent or buyers’ advocate is a licensed real estate agent who is procured by a prospective property purchaser to facilitate the acquisition of a property based on achieving the specific goals of the buyer. The buyers’ agent is tasked with sourcing, evaluating, appraising, negotiating, and securing property on behalf of their client.

What are buyers agent fees? How are they calculated?

In NSW, commissions are completely deregulated; meaning the fee and the structure is completely negotiable and this applies to buyer’s agents not just real estate agents.

Why are we still nervous in the face of economic uncertainty? Is now the right time to buy?

With the election over, have we become more certain about the future? Probably not.

Looking to ‘add value’ to the attic space of an apartment [Cautionary Tale]

A common marketing strategy for agents that sell top floor apartments is to spruik the potential to use the attic space as the main draw card for the property. But be careful, I’ll tell you why.