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Weighed down by the credit crunch and high inflation, the global house price boom has ended, according to the latest Global Property Guide survey of house price indicators.

Only 13 countries in which dwelling price indices are regularly published saw prices rise during the year to end Q1 2008, while 21 countries saw dwelling prices fall in real terms, i.e., after adjusting for inflation.

In most countries where house prices are not falling, they are clearly losing momentum.

The biggest house price fall was in Latvia (Riga), down -38.2% by May 2008 from a year earlier, after adjusting for inflation.

US prices also fell during the year to end of Q1, by anything from -4.2% to

-18.1%, after inflation, depending on which index is used.

In Europe, significant real house price falls took place during the year to end-Q1 2008 in Ireland (- 13.2%), Luxembourg (-5.8%), Portugal (-4.3%) and Malta (-4.9%).

UK house prices were only slightly down at end-Q1 from a year earlier, the house price crash having begun in earnest in early 2008. House prices fell during the first quarter by between – 0.7% to -2.1% (inflation-adjusted), depending on the index used.

In Japan, the housing market is now losing momentum once again. The urban land price index for 6 major cities was up only 4.1% year-on-year (y-o-y) to H1 2008 in nominal terms (2.9% after inflation), down from 7.8% over the same period in 2007 (7.9% after inflation). The national index for Japan fell by 0.7% y-o-y to H1 2008 (-1.9% after inflation).

Inflation woes

In nominal terms, 28 countries saw their housing prices rise during the year to end-Q1 2008, while only 6 saw prices fall.

However when property prices are adjusted for inflation, the picture looks entirely different. Skyrocketing oil, food and commodity prices have pushed inflation up around the world.

In Ukraine for instance, nominal house price growth was sharply down from 79.5% in the year to Q1 2007, to 18.2% in the year to Q1 2008. But when adjusted for inflation, property prices actually fell by -6.4% y-o-y.

In real terms, property prices fell y-o-y to end-Q1 2008 in Norway, Spain, Greece, South Korea, New Zealand, Indonesia, South Africa, Israel, Estonia and Lithuania, despite nominal price rises in all these countries.

House-price booms elsewhere

On the other hand, strong house prices increases were observed in a handful of emerging economies. Ahead of the pack was China (Shanghai), with an enormous 40.5% nominal house price surge during the year to the end of Q1 2008.

Other countries with impressive nominal house price increases y-o-y to end-Q1 2008 were Bulgaria (31.6% y-o-y), Hong Kong (31.1% y-o-y), and Singapore (29.8% y-o-y). Strong house price gains also took place in Cyprus, Australia and Taiwan.

Again, when adjusted for inflation, many of these price rises look much less impressive. The world’s top-performing housing market (after inflation) was not China or Hong Kong or Singapore, but Slovakia, where real house prices rose by 29.3%.

Causes of the downturn

There were arguably three main factors behind the end of the housing boom:

· After a very long boom, house prices had become stretched in many countries. The main indicator of this is the price/rent ratio, which compares the relationship between the buying price of a dwelling, with its rental price.

As the boom progressed, buying prices become high (in relation to rents and financing costs) in many countries, leading to decisions by some buyers to rent instead of buying. Mortgage-holders also came under extreme pressure as interest rates rose. A key lesson is the critical importance of monitoring price/rent ratios, to ensure that house prices valuations stay within reasonable limits. (Declaration of interest: The Global Property Guide produces comprehensive price/rent ratio estimates, globally).

· Inflationary pressures forced central banks to raise interest rates. This particularly impacted European countries where mortgage loans were primarily made on variable interest rate terms. Countries with heavily indebted households are also vulnerable when interest rates increase.

In developing countries, the overall economy (which strongly sways the mood of the housing market) is sometimes very sensitive to interest rate changes or to direct intervention by the monetary authorities. In some countries, mere threats of interest rate hikes are enough to shake the stock market and scare away foreign investors. But conversely, developing countries typically have smaller mortgage markets, reducing the impact on housing markets.

· Unsound regulatory and banking practices in the US and elsewhere led to over-lending by mortgage providers which, when these unsound loans began to go bad, caused a financial crisis. The bad news spread both by a panic contagion effect, and because many banks outside the US turned out to be more exposed than initially expected.

Prospects

Inflation remains an extremely challenging problem for the world’s central banks. In addition, the financial shocks to the world’s banking systems resulting from house price falls remain to be worked through (historically, most banking system collapses around the world have been caused by falling house prices).

Until these financial systems feel more confident that their problems are behind them, loan volumes are likely to fall. Therefore, it seems likely that the world’s house price momentum will continue to go down.

Description:

The Global Property Guide is an on-line property research house.

Terms of Use:

On-line newspapers, magazines, sites, etc wishing to use material from this press release MUST provide a clickable link to www.globalpropertyguide.com Sites and newspapers found not to be providing a link to us will be removed from our press list.

Requests for Comments:

Requests for comments are best made by telephone to +(63) 917 321 7073. UK-based callers should telephone before lunchtime. Our local time is Hong Kong time, i.e., standard time + 8.00

Economics Team:

Prince Christian Cruz, Senior Economist Phone: (+632) 750 0560 Cell: (+63) 917 735 2228

Email: prince@globalpropertyguide.com

Publisher and Strategist:

Matthew Montagu-Pollock Phone: (+632) 867 4220 Cell: (+63) 917 321 7073

Email: editor@globalpropertyguide.com

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No surprise – Monte Carlo is No 1 in the Global Property Guide’s list of World’s Most Expensive Residential Real Estate Markets 2009, more than twice as expensive, at US$45,000 per square metre, as the runner up. [www.globalpropertyguide.com]

Battling for the number 2 position are prime central Moscow and London. Prime central Moscow’s US$20,853 per square metre price tag slightly outpaces core Prime London’s US$20,756 per square metre, though it is fairer to say the two cities are neck-and-neck.

London residential property prices have fallen for much of 2008, while Moscow property price declines only started in the last quarter, allowing Moscow to catch up with London. Both countries have experienced strong currency declines.

Tokyo and Hong Kong come in fourth and fifth, respectively. New York, the only US city included in the survey , is 6th, with an average price of US$15,000 per sq. m. Completing the top ten most expensive real estate markets are two European cities (Paris at 7th and Rome at 9th) and two other Asian cities (Singapore at 8th and Mumbai at 10th). Average prices range from US$9,000 per sq. m. to US$12,000 per sq. m. The figures are based on the average price of a 120 sq. m., good-condition high-end used apartment in the city centres of more than 110 cities around the world, typically the economic centres where most foreigners are likely to buy. Data were collected during 2008. The US dollar exchange rate used is that of January 27, 2009. Bargain hunters’ dream For global bargain hunters, there are several places where property prices are relatively cheap, for example parts of the Middle East, Latin America and Asia. Cairo, Egypt is one of the cheapest cities in the world, with prime city centre prices at around US$600 per sq. m. Another Middle Eastern capital in the bottom 10 is Amman, Jordan, with average city centre prices at US$1,150 per sq. m.Three Asian cities are included in the 10 cheapest, all located in rapidly growing and heavily populated countries, Bangalore in India, Chengdu in China and Jakarta in Indonesia. Chengdu, damaged during the magnitude 8.0 earthquake in 2008, remains a vital economic, transportation and communication hub in the heartland of China. Indonesia was the last country to recover from the 1997 Asian Financial Crisis. However, the economic reforms implemented by the Yudhoyono administration are setting the stage for steady economic growth. Five Latin American cities complete the list of 10 cheapest cities for property buyers – Concepcion and Santiago in Chile, Quito in Ecuador, Managua in Ecuador, and Lima in Peru. The same countries also tend to earn good rental yields. OvervaluedRental yields are generally below 5% in most European cities, suggesting that property is still overvalued. Rental yields are generally below four percent in the following cities: Munich, Barcelona, Vilnius, Helsinki, Madrid, Rome, and Nicosia. Rental yields in Europe are lowest on Andorra at 2.2% and Athens at 2.7%. Rental yields are between 4% and 5% in major cities such as Brussels, Tokyo, Berlin, Moscow, Copenhagen, Warsaw, New York, Shanghai, Paris, London and Geneva. Returns from rental investments are also relatively low in key Asian cities such as Singapore and Hong Kong and in almost all Indian cities (Bangalore, New Delhi, and Mumbai)Only six cities have rental yields of more than 10%, led by Chisinau with an average gross rental return of 14%. The Moldovan capital is followed by Cairo, Jakarta, Manila, Skopje and Lima. High returns can also be expected in Latin American cities. Yields range from 8% to 10% in Panama City (Panama), Bogota (Colombia), Managua (Nicaragua), Santiago (Chile), Buenos Aires (Argentina), and Quito (Ecuador). Rental yields in Kula Lumpur (Malaysia) and Amman (Jordan) are also typically above 9%. House price movements The recent house price boom and bust defeats the traditional notion that real estate prices are based primarily on local conditions. The relatively low cost and ease of moving capital around the world has made it easier for people to invest in real estate markets in several countries. This is complemented by the relatively lower cost of international air transport. Several countries have also removed foreign ownership restrictions, a move encouraged by the Organization for Economic Cooperation and Development (OECD) and the European Union. The result of these changes has been a remarkable increase in cross country real estate investments – helping make the boom, and the bust, truly global.

——————————–Description: The Global Property Guide is an on-line property research house. Terms of Use: On-line newspapers, magazines, sites, etc wishing to use material from this press release MUST provide a clickable link to www.globalpropertyguide.com Sites and newspapers found not to be providing a link to us will be removed from our press list. Requests for Comments:Requests for comments are best made by telephone to +(63) 917 321 7073. UK-based callers should telephone before lunchtime. Our local time is Hong Kong time, i.e., standard time + 8.00Economics Team:Prince Christian Cruz, Senior EconomistPhone: (+632) 750 0560Email: prince@globalpropertyguide.comPublisher and Strategist:Matthew Montagu-Pollock Phone: (+632) 867 4220 Cell: (+63) 917 321 7073Email: editor@globalpropertyguide.comAddress: Global Property Guidehttp://www.globalpropertyguide.com 5F Electra House Building115-117 Esteban StreetLegaspi Village, Makati CityPhilippines 1229info@globalpropertyguide.com