Here Are The World’s Top 10 Riskiest Real Estate Markets

As a Pakistani, we are always hesitant while investing our hard-earned money in the property segment in Pakistan. The reason behind this hesitation is the risk of fraud, fluctuating real estate market, and lack of awareness. However, let us tell you that our real estate market isn’t the only risky property market in the world. According to Oxford Economics, Sweden is the riskiest real estate market in the world, followed by Australia, Canada, and Hong Kong. The risk in the real estate segment essentially posed a threat to economic activity.

Adam Slater, the lead economist at Oxford said in his research note that “In all four, valuations are very elevated, there has been a lengthy housing boom, debt levels are high and there is a significant share of floating rate debt.”

The research also revealed that the risks in key markets like the U.S, Germany, France, China, and Japan are limited. Moreover, recently, there has been no considerable rise in mortgage rates across most economies. However,  some of them saw a fall.

“So, the classic ‘trigger’ for house price declines is largely absent,” Slater said. “However, rising rates are not strictly necessary for prices to start falling.”

The real estate prices in Australia are falling drastically. There is a fall of around 3 percent till August in major cities. The Sydney alone faced the decrease of 5.6 percent in the prices. Country’s top 4 banks raised mortgage rates. The banks blame higher funding costs for this raise.

Oxford also found a clear negative relationship when it compared the markets across OECD countries based on the data from 1970 to 2013. During the time, the valuations had risen 35 percent or more above the long-term average, and property prices fell around 75 percent of the time over the following five years.

“This points to many OECD countries seeing stagnant or negative real house price growth in the next few years: the scope for a further house price ‘melt-up’ in highly valued markets looks extremely limited,” Slater added.

The fluctuation in real estate prices has a significant impact on economic activity, therefore the stretched valuations matters. Oxford cited a sample of 83 house price booms where it found house prices tended to fall after booms, and often substantially.

“For the G7 countries, we find a positive relationship between consumer spending and real house prices from 1997, albeit possibly weakening in recent years,” Slater said.