The number of luxury homes sitting on the global market and not selling is beginning to pile up. It may also be a forewarning of the beginning of another housing bubble getting ready to burst. The last time there was a rise in luxury homes not selling was in 2007 and 2008 - right before the housing crash. Analysts and brokers are warning of another housing bubble due to the high number of luxury homes not selling that they think is a sure ‘bubble signal’. The housing market is far from being on stable ground making investors and buyers very wary.
Higher priced homes in six figures and above are often bought and sold by investors. These markets of higher priced properties have been cooling drastically, striking a warning throughout the real estate community. Inflated property values and the overbuilding of luxury condominiums are alarming economists.
In London, the sale of luxury homes in the $14 million and above fell more than 30% in the last new months. The reason was higher taxes and a slowdown in the number of foreign buyers. In February 2014, London had approved construction for 189 luxury condo towers for wealthy foreigners. The super rich buyers from Russia, China and the Middle East were the most active in London. They were attracted by the prospect of high returns. These investors have been hurt by the economic slowdown and collapsing oil prices.
Luxury waterfront condominiums in Vancouver, BC have one in every 4 condos vacant. This is the equivalent to 35 condo towers, each 20 stories high being empty. Towers typically have 354 units each. Nearly 75% of the sold units have absentee owners. The low occupancy is also jeopardizing the economic life to surrounding stores and businesses. Real estate analysts have been shouting Toronto and Vancouver were overbuilding luxury properties and creating a ‘potential disaster’. Almost 3 years ago, Deutsche Bank warned that Canada’s housing market was 60% overvalued.
In Asia, low interest rates and soaring property prices are creating the perfect storm for construction bubbles. Singapore banks have been offering abnormally low interest rates and now have the world’s third most expensive residential market where prices are 57% overvalued. Shanghai has an estimated 64 million apartments stand empty in what they call ‘ghost towns’. What was built is not affordable to the vast population. Since 2008, Hong Kong property prices have risen 120% making it number one in the world with the least affordable housing.
Leading world economists began to worry when they saw a rapid rise in global housing prices reflecting a speculative attitude in luxury housing. They believe the high house price inflation is what set off the last housing bubble. Low interest rates and huge profit potential cause construction booms destined to collapse. There needs to be more restraint in speculation, and a realistic attitude towards sustainable development or we will have housing crashes again and again.
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