Hong Kong and Singapore have topped The Economist’s latest quarterly global house price index as the countries where home values rose the most.
Prices in Hong Kong rose 20.1 per cent from Q4 2009 to Q4 2010, while in Singapore they rose 17.6 per cent. According to the survey of 20 economies, home values in China rose 6.4 per cent, Australia rose 5.8 per cent, New Zealand rose 0.9 per cent, and Japan dropped 3.6 per cent.
Hong Kong also ranked as the second most overvalued market according to the survey, with homes overvalued by 53.7 per cent. Australia took top honours in that category with homes overvalued by 56.4 per cent. New Zealand’s homes were overvalued by 20.6 per cent, Singapore’s at 18.1 per cent, China’s at 12.9 per cent, and Japan’s homes were undervalued at 35.2 per cent.
The Economist calculated overvaluation and undervaluation of homes by comparing the ratio of prices to rents. In explanation of this methodology, the newspaper wrote: “In theory, the price of a home should reflect the value of the services it provides. People who choose to rent their homes buy those services on a monthly basis. Home prices should therefore reflect the rents that tenants pay.”
Only in Hong Kong, Singapore, and Switzerland were housing prices more overvalued than before the global financial crisis began in the third quarter of 2007 – price to rent ratios in every other economy surveyed dropped in the same time period.
In Japan, owning compared to renting has been getting cheaper every year since 1990, when the country’s property bubble burst. Homes are now undervalued there by over a third, the latest survey revealed.
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