Everyone has their own opinion about whether a property bubble exists in Bangkok’s property market.
Whilst this report, published late last week by UBS, does not include Bangkok in its research, it does through the spotlight on some cities where the risk of a bubble is worryingly read.
The report noted that housing in Zurich and Geneva is moderately overvalued; and that property bubble risks are growing in other developed world cities globally.
The UBS Global Real Estate Bubble Index 2017 report analyzed residential property prices in 20 cities. Toronto, it said, faces the greatest risk of a housing bubble, followed in descending order by Stockholm, Munich, Vancouver, Sydney, London, Hong Kong, and Amsterdam.
In Europe the outlook is heating up. Property bubble risks are rising in Stockholm, Munich, and Amsterdam, while Paris and Frankfurt have become more overvalued since 2016.
London is still at risk of a bubble but less so than last year. In contrast, Zurich and Geneva remain moderately overvalued.
Claudio Saputelli, Head of Global Real Estate for UBS CIO WM, said: “Improving economic sentiment, partly accompanied by robust income growth in the key cities, has conspired with excessively low borrowing rates to spur vigorous demand for urban housing.”
As supply is always a constraint in the most appealing cities, soaring prices has been the consequence. The combination of inexpensive financing and bullish expectations caused valuations to skyrocket and encouraged local bubble risks to grow.
Surely the statement above – bullish expectation – can apply just a readily to Bangkok?
Expectations of long-term rising prices partly explain demand for housing investment in major global cities.
Many market participants expect the best locations to reap most value growth in the long run buoyed by the growth of high-wealth households. Falling mortgage rates over the last decade have also made buying a home vastly more attractive.
As long as supply cannot increase rapidly, many buyers see prices in the most attractive cities decoupling from rents, incomes and national price levels.
This narrative has received additional impetus in the last couple of years from a surge in international demand, especially from China, which has crowded out local buyers.
An average price growth of almost 20 percent in the last three years has confirmed the expectations of even the most optimistic investors.
The report concluded by saying that taking less risk in overheated markets has historically paid off on average: they delivered worse returns over a full boom-bust period than more balanced markets did.