The Global Property Bubble

Well the following chart below confirms what I earlier suspected; Indonesians have been frantically blowing a property bubble: 

Of course much of it could have also been directed at inflating her domestic housing bubble as I pointed out here.

This chart from Reuters based from Knight Frank reveals that in terms of luxury homes, Jakarta has led the world in % returns over the past 6 months. Over 25%, just awesome!

As for Singapore’s plunging luxury homes, here is a related report from another Reuters report: (bold mine)

There's an eerie silence at night in Sentosa Cove, the man-made island resort billed as Singapore's answer to Monte Carlo and the only place in the country where foreigners can buy landed property.

Dozens of houses - complete with their own private yacht berths and multiple swimming pools - sit empty while few lights are on in the apartment blocks overlooking the marina, a few kilometres away from Sentosa's giant casino.

Prices in the gated community, where Australian mining tycoons Gina Rinehart and Nathan Tinkler bought properties, fell around 20 percent in the past year as lending restrictions and taxes on foreign buyers burst a bubble in the Southeast Asian financial hub's luxury real estate market.

Investors could see the value of their assets fall even further with developers and investors still struggling to sell even after the recent price falls. Real estate websites list hundreds of flats and bungalows for sale, yet just 12 apartments and one house have changed hands all year on Sentosa, according to data from the Urban Redevelopment Authority (URA).

"The way prices have fallen in Sentosa, it's as if there is a global financial crisis," said Alan Cheong, head of Singapore research at property firm Savills.

As if there is a global financial crisis. Wow. 

Anyway, like all bubbles, excess supply funded by debt will eventually get revealed in balance sheets. As the same report says this will extrapolate to “the number of distressed investors is expected to rise.”

The Economist, whom has designed their own housing metric, seems equally apprehensive over the pace of surge in housing speculation from zero bound rates

They write (bold mine)

BEFORE the financial crisis of 2007-08 low long-term interest rates fuelled an extraordinary house-price boom around the world. That bubble was pricked in the crisis and subsequent recession. Since then, however, central banks’ attempts to crank up the recovery by pushing down long-term interest rates to new lows have had a predictable consequence in many property markets. House prices are now rising in 18 of the 23 economies that we track, in eight of them at a faster pace than three months ago (see table).

In short, a global property bubble. 

Where the weakness are…

There remain some weak spots, especially in Europe. Prices in Spain, which had one of the biggest bubbles before the crisis, are still falling. They have also been declining in France and Italy, reflecting continuing economic weakness in the euro zone’s second- and third-largest economies. In contrast, housing markets are buoyant in some northern European countries, notably Britain.

What overvaluations are made of…

Since some recovery was bound to occur after the housing slump, how worrying are the renewed signs of exuberance? To assess whether house prices are at sustainable levels, we use two yardsticks. One is affordability, measured by the ratio of prices to income per person after tax. The other is the case for investing in housing, based on the ratio of house prices to rents, much as stockmarket investors look at the ratio of equity prices to earnings. If these gauges are higher than their historical averages then property is deemed overvalued; if they are lower, it is undervalued.

Based on an average of these measures, houses are at least 25% overvalued in nine countries. Judged by rents, the most glaring examples are in Hong Kong, Canada and New Zealand. The overshoot in these economies and others bears an unhappy resemblance to that prevailing in America at the height of its boom before the crisis.

Well all these simply exhibits not only how easy money fuels speculative bubbles but the stage of the cycle which the bubble has reached. 

Watch out below!