Overvalued property market or simply a sign of investor confidence?

If you read the financial press you are bound to come across headlines suggesting property markets around the world are overvalued. Many suggest the USA is overvalued, as is the UK, Australia and Canada seems to have been overvalued for a decade. Despite the doom and gloom from some so-called experts many of these “overvalued” property markets continue to hold ground and perform better than average. So, are so-called overvalued property markets simply a sign of investor confidence?

Safe haven investments

When you bear in mind the economic turmoil in the Far East and the European disaster, save haven investments have become an important factor of life in the property investment market. There is no doubt that London has benefited from this “safe haven” status although in light of Brexit we have seen a softening of prices. The USA, quite simply the engine room of the worldwide economy, has seen a mixed performance in real estate markets but many deemed overvalued by experts continue to hold firm.

Then we look at Australia, which has performed admirably since the 2008 worldwide economic downturn, amid suggestions that Australian property could be up to 40% overvalued. So, is an expert really suggesting that Australian real estate prices should fall by 40% to put them back on an even keel? Remember, Australia was one of the few worldwide economies not to dip into recession in light of the 2008 economic collapse.

The Canadian property market is slightly different to the norm in that investment in real estate is focused on a relatively small number of regional markets. At the same time it is also easy to forget that the Canadian government received great recognition around the world for the way it handled the economic downturn and the need to slash public spending. This sensible approach by the government of Canada attracted significant overseas investment, economic growth and prosperity for the property market. Some areas of the Canadian property market may have “got ahead of themselves” but again surely there is as much of the safe haven status appeal as anything else?

Investor confidence

Investing in any market is obviously based upon facts and figures but investor conference should never be dismissed. This is why the likes of America, Canada, Australia and the UK have performed admirably in recent times despite appearing, in the eyes of some experts, to be overvalued. There are so many areas of Europe, as one example, which are still struggling to stay above water and have seen their property markets collapse. Spain, Italy and Portugal are three areas which have suffered significant falls and while some of the repossessed stock has been acquired by third-party investors there is still something of an overhang impacting sentiment.

So, next time you see somebody suggesting that a particular property market is overvalued this may well be the case but it might also be a simple dose of investor confidence. To have any confidence in a property market you need to have confidence in the underlying economy and the underlying authorities. We only need to look towards Europe to see how the opposite can impact investor sentiment and property prices.

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