House prices in London are the most over-valued of any major city in the world and are in “bubble-risk territory”, a report by economists at UBS has found.
Foreign investment, the help-to-buy scheme, “alluring” yields for buy-to-let landlords, and ongoing population growth have all led property prices in the city to decouple from local incomes, and there could be a “substantial price correction” if the conditions for investment deteriorated, the report said.
The UBS Global Real Estate Bubble Index looked at 15 cities around the world, including Hong Kong, Sydney, New York, San Francisco and Geneva, examining prices against the economic backdrop in each country.
It found London was less affordable for locals who wanted to buy than any city except Hong Kong, and that it was at most risk of prices falling.
The city rated 1.88 on UBS’s bubble index, and the report said that between 1985 and 2009, whenever the index exceeded 1.0 “a real price correction of on average 30% began within three years 95% of the time”.
It added: “Investors in overvalued markets should not expect real price appreciation in the medium to long run.”