Why Property Prices are Crashing in Every Major City in the World?
In the decade after the Great Recession of 2008, property prices have risen by leaps and bounds. In many places around the world, property prices grew by a multiple of 10 on the back of loose monetary policies which had become rampant all across the globe. Many speculators have been buying apartments and houses on the assumption that the tide will never turn.
However, surprisingly, the tide has already started to turn. As per the data released in early 2019, 2018 has been a bad year for the real estate market across the world. There is no major city, financial or trade centre, which has not seen a decline in real estate prices in the past year. The reasons behind the decline are a mix of global as well as regional factors. In the article, we will have a look at some of these reasons.
London: The decline in prices has been quite pronounced in London city. According to a report by Savills, the real estate prices in London are down by close to 19% from their peak which was in 2014. The London property market has been hit hard by massive changes in the regulatory and political environment.
Firstly, there is the Brexit which will fundamentally change the nature of buyers in the London market.
Many European companies, as well as international funds, are looking to liquidate their holdings whereas there are not enough buyers in the region.
The British government has also become very vigilant about the fact that money laundered from countries like Russia and China is making its way into the London realty market. The crackdown on this money laundering has started impacting the real estate market in a negative way. To top it up, property taxes in London have been increased even further making the city unaffordable.
Sydney: The property prices in Sydney have already fallen more than 12% since 2014. There is a likelihood of the prices declining by a further 8% in this year. These declines are catastrophic given the fact that Sydney had never seen a property price decline in the past four decades.
Even when the entire world was suffering under the effects of the Great Recession in 2008, the Sydney property market was steady. The decline in prices has been caused by a slew of measures introduced by the Central Bank of Australia.
Firstly, the interest-only loans which were popular with speculators have been banned from the market.
Australia has also increased the sales tax which is levied on sales of homes. This has been done in order to prevent incessant flipping of properties which was leading to an unsustainable rise in prices.
New York: According to a leading brokerage firm in New York, the median prices of apartments in New York have gone below the $1 million mark for the first time since 2015. The number of transactions happening in the New York market has gone down by 22% from last year whereas the number of homes for sale has increased by 15%. Hence, the market has suffered a 6% fall in price. The main reason for the decline in prices is two-fold.
Firstly, the Fed has hinted towards an aggressive stance for the first time in the past decade. Interest rates have been raised four times in the past year, making mortgages expensive and pricing people out of the market.
Secondly, the state of New York is now one of the highest taxed states in the country. This is the reason why many businesses are leaving New York for neighbouring states. Since the number of people exiting the state has increased, there are fewer buyers and more sellers which is exerting a downward influence on prices.
Hong Kong: The most expensive real estate market in the world is also not immune to the current slowdown. Experts are of the opinion that property prices in Hong Kong are down by at least 10%! JLL, which is a leading broker, has warned that these prices could fall as much as 25% if the trade war between China and the United States worsens.
Hong Kong follows the same monetary policy like the United States. Hence, when the borrowing costs in the US went up, they also increased in Hong Kong. Also, the Hong Kong government has been trying to reduce property prices. They have implemented a tax on vacant properties which is aimed at preventing builders from hoarding properties in anticipation of future price gain.
Mumbai: According to JLL, prices in Mumbai have declined for 2 consecutive years and are close to 15% below their 2014 peak. There is a slew of regulatory measures such as RERA and demonetization which have hit the real estate market hard. Also, the government has capped the tax breaks which were available to owners of second homes. This has driven investors and speculators out of the market. The property is still too expensive for end users who are following a wait and watch approach hoping for the prices to fall further.
The bottom line is that the heydays of real estate are now over. The sector is facing a decline in almost every city in the world, and this may be likely to continue for some time.
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