USB report: “Global property boom is over�

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Property Prices:

It is likely that the property market peaked last year, that’s
according to the multinational Swiss investment bank, USB. The bank predicts though,
that proving interest rates remain low, and cheap credit remains available, rather
than a crash, the property markets around the world are facing the prospect of
a gradual slowdown.

Slowing growth, high asset prices and increasing risks are
indicators of the final stages of the long recovery after the financial crisis
of 2008, warns USB.

Interest rates at near zero since the great recession have
served to keep property asset prices rising, but the signs are that buyers are
stretched finically, and investors are facing low returns, especially on prime
investment property.

“Prices have run out of room to grow in many parts of the
world in commercial and residential property, and the market cycle is thought
to have peaked around nine months ago, the investment bank says, according to a
report by The Daily Telegraph.

While interest rates remain at historically ultra-low rates,
USB suggests that a property crash can be avoided, further supported by a safer
banking regime following the experience of the credit crunch in 2008.

Historical Bank Base
Rates since 1970 – currently at 0.75%

Source: Trading Economics | Bank of England

Thomas Veraguth UBS’s chief investment officer, has said:

“In the past 50-60 years a typical cycle was
overheating, creating higher interest rates as central banks tried to cool down
the economy, and those financing costs killed the [property market] cycle.

“Now we are in a situation where interest rates are
very low, so what we think is going to happen is a much more gradual downturn,
so it is not a crash that we expect. We would really need a severe recession to
drive a big correction, but that is not our base case,” Mr Veraguth told The Daily Telegraph.

Most borrowers, including homebuyers and investors in commercial
property, already enjoy lower interest rates with their fixed interest mortgages
locked-in. This gives borrows some protection against a slump and helps support
the market.

High Street commercial retail property has already seen a substantial
decline in values as changes in shopping habits, including the growth of online
shopping, are bringing about structural changes.

USB forecasts that achieving a gradual slowdown will depend
on market conditions remaining, and borrowing costs low, but there are no
guarantees as central banks have already warned of higher interest rates.   

The International Monetary Fund has warned that housing
markets in some of the leading world economies are overvalued by up to 12%, leading
to fears that a rapid correction could lead to another property slump and a recession.

According to USB, Britain has some of the most expensive
property in the world, so predicts there is little room for growth, and indeed
there will most likely be a fall by “low single digits� in coming months, unless
there is a breakthrough with a Brexit solution.

Although undoubtedly property prices have been pushed to unprecedented
highs following the financial crises, due to ultra-low interest rates and quantitative
easing, cheap money has supported the market until now. Also, says USB, debt levels
secured on property, compared to total bank debt, and pre-crisis levels, is at
its lowest level for 17 years.

So far this year there’s been a slump in first-time buyers
taking out mortgages, numbers falling by 2.4% year-on-year, according to UK
Finance, and home mover sales have dropped by over 6%.

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