Real Estate price fever around the world



Last time, real estate prices in a series of countries skyrocketed.  Canada is far ahead of other countries in terms of house price growth, while China has struggled to cool down the market.

While getting less attention than the stock and crypto markets, real estate has been an equally prominent market for more than a year.  Many rich countries are seeing a spike in housing prices despite the effects of the Covid-19 pandemic.

 Similar to the stock market, house prices are supported by the monetary loosening policies of the governments of many countries.  Along with that, falling interest rates also make real estate investment more attractive because returns from risky assets decline.

 Besides, there are other economic policies such as income support package, debt rescheduling to help unemployed workers not having to sell houses.  In addition, when office workers work from home more, they will want a comfortable and comfortable space.

1. America

The US may be experiencing the biggest housing boom in decades.  In February 2021, housing prices in southern California, USA hit a record high.  Customers scrambled to buy, while the number of houses for sale was not much.

 According to data from real estate firm DQNews, the median home selling price in six southern California counties increased 15% from a year earlier to $619,750.  As of February 2020, sales soared to 17.6%.

 Demand to buy a house exploded when borrowing costs hit historic bottoms.  The blockade orders for the Covid-19 pandemic have also made many people want to move to larger homes.  Another factor is that Millennials (people born between 1980 and 1995) are entering house buying age.

However, the data shows the supply is not keeping up with demand.  According to Redfin, from February 8 to March 7, the number of new house being launched in Los Angeles is only 4% higher than the same period last year.

More and more house owners are afraid to sell their houses, according to chief economist Daryl Fairweather of real estate broker Redfin.  They don't want to buy another houses when the market is tough.  Some borrow more from banks at low interest rates.

 Some wealthy house onwes are also opting to buy a house that is further away from work, but keeping the old one.  Meanwhile, rising wood prices make it harder for new house projects to start.  

 In Los Angeles, average selling prices rose 14.3% to $708,500 in February, while sales increased 19.1%.  Average selling price in Orange County increased 9.6% to a record 820,000 USD, sales also climbed 13%.

 In San Diego, average selling prices rose 14.6% to a record $ 672,750, while house sales rose 13.8%.  Meanwhile, the average selling price and sales at Ventura climbed 13% and 23.9% respectively.

Real estate price fever around the worldDemand to buy a house exploded when borrowing costs hit historic bottoms. / ph: pexels

2. Canada

One country that has been ahead of others in terms of house price growth.  According to housing data collected by the Federal Reserve Bank of Dallas, nominal home prices in Canada increased at an annual rate of about 16% in the fourth quarter of 2020 compared to the previous quarter, outperforming the US, UK and elsewhere.

As of the fourth quarter of 2020, housing accounts for 9.3% of Canada's GDP, up from 7.5% in 2019 and 6.6% from a decade ago.

 Mr. John Pasalis, president of the real estate brokerage Toronto Realosophy Realty, said that it is necessary to "set alarm bells" about the real estate bubble in the suburbs around Toronto.  In these regions, prices have increased by more than 30% in just eight months.

 Another "hot" area is the capital Ottawa.  House prices have risen about 25% in a year, creating unprecedented bidding battles.

3. Singapore

Singapore is also keeping up with the strong rise of the global real estate market.  In Singapore, 23 government subsidized apartments were sold for at least SGD 1 million ($743,000) in February, according to data from real estate portal SRX.

 In the first two months of 2021, 36 units were sold in the above price bracket, an increase of 350% from a year earlier.  House built by the Singaporean government are often located in prime locations, such as near Orchard Road shopping mall.

 After Singapore lifted the quarantine requirement in June 2020, house prices in the country quickly recovered thanks to low interest rates.  

According to SRX Property, a large two-story apartment in Toh Yi Drive that is a public house (built by the Singapore government) was sold for a record high price of SGD1.21 million in February.

 The data showed resale public housing prices were up 1.4% in February from a month earlier and 8.3% from a year ago.  However, they are still below their 2013 highs.

 Singapore public housing is only available to Singaporean citizens.  Owners can only sell apartments after staying at least 5 years, avoiding surfing the property for a profit.

According to Leonard Tay, Head of Research at Knight Frank Singapore, public apartments for sale for more than SGD 1 million are usually located in or near prime locations such as the city's financial district.

 House buyers are willing to buy well-located public apartments for SGD 1 million to have quality houses. Government subsidies over the past few years have also increased purchasing power for customers who want to buy public housing for resale.

 Meanwhile, the sales of private apartments have also set a record high within two years, catching up with the strong waves of real estate markets around the globe.

4. Australia

In February 2021, Australian housing prices saw their highest increase since August 2003 due to record low interest rates and government incentives.  Prices in cities increased by 2%, led by Sydney and Melbourne.

 "Australia's housing market is in a large-scale boom. Rapid growth has been driven by record low mortgage rates, improved economic conditions, government incentives and fears of supply decline.", explains Tim Lawless, lead researcher at CoreLogic.

 Australia's central bank lowered interest rates to the bottom and committed to maintain at least three years.  Residents are also looking for larger homes for home workspace.  The rapid rate of price increase has sparked fears of lack of houses, causing buyers to rush to buy houses.  According to the Commonwealth Bank of Australia, this situation could push house prices up 16% over the next two years.

 An auction for a small two-bedroom house in the suburbs of Paddington (Sydney) attracted more than 250 participants.  Bidding price starts at 1.4 million AUD (1.1 million USD), 150,000 AUD higher than the starting price.  In the end, the house was sold for 1.7 million AUD.

New Zealand house prices rose 13% in January from a year earlier.  The problem became so serious that the government considered asking the Reserve Bank of New Zealand (RBNZ) to consider the effect on house prices when setting interest rates.  However, the bank objected.

 Fears that the Australian housing market would plunge as workers lost their jobs quickly disappeared.  Instead, the supply shortage is driving prices to explode.  CoreLogic reported that the number of house for sale in the first three weeks of February decreased 26% from a year earlier.

The number of vacancies is at a record low for this time of year. Buyer demand is higher than average. These conditions benefit sellers. Buyers fall into the FOMO trap (fear of being missed) and reduced bargaining power.

 In January alone, home loan approvals rose 10.5%, according to data from the Australian Bureau of Statistics.

The uptrend is being supported by record low interest rates, the belief that interest rates will remain low for years to come, ample credit supply and an improved economic outlook as the vaccine rollout promises an appointment to end the pandemic.

 However, the return of the Australian housing boom has raised concerns.  One of them is the ability to increase household debt, while many young people have a harder time buying a home.  According to a report in February, Sydney is the most expensive housing market in the world, while Melbourne is sixth.

5. China

The risk of a real estate bubble is also a concern for the Chinese government.  China's real estate market has grown rapidly since the 1990s.

House ownership rates have soared.  However, house prices also skyrocketed.  More and more Chinese people cannot afford to pay for a house.

 Average house prices in China are 9.3 higher than people's annual income, according to a study.  For comparison, the figure is 8.4 in San Francisco, one of the most expensive cities in the US and in the world.

 Chinese authorities have tried many ways to cool down the real estate market.  Beijing restricts mortgage lending and speculative buying.  Real estate companies are also restricted from selling bonds to raise capital.

 The Chinese government has ordered real estate lending restrictions and the rule of "three red lines".  Thus, real estate companies doing business with losses will have to find ways to reduce debt.

Most recently, the Ministry of Natural Resources of China said key cities should coordinate auctions of residential land, held at some specific times of the year.

 Before that, the local governments of China put the land plots for bidding and did not set a schedule.  Uncertainty causes real estate companies to rush into the auction in hopes of winning.

 Real estate developers such as China Evergrande Group and Sunac China Holdings Ltd.  have to borrow massively from banks or sell bonds to mobilize capital to buy land.  After developing the project, this group of businesses sold houses at high prices.  This cycle continuously repeats, thereby pushing up real estate prices.

Real Estate price fever around the world

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