House Prices Are Inflating Around The World
Pandemic-related stimulus and ultralow rates are turbocharging markets from Europe to Asia.
Pandemic-related stimulus and ultralow rates are turbocharging markets from Europe to Asia.
As the U.S. housing market booms, a parallel rise in residential real-estate prices across the world from Amsterdam to Auckland is raising fears of possible bubbles and prompting some governments to intervene to prevent their markets from overheating.
Policy makers were already worried about high property prices in parts of Europe, Asia and Canada before the pandemic, especially as years of low-interest rates kept demand strong.
But now the trillions of dollars of stimulus deployed worldwide to fight the effects of Covid-19, along with changes in buying patterns as more people work from home, are turbocharging markets further.
That is putting policy makers in a bind. Many want to keep interest rates low to sustain the post-pandemic recovery, but they worry about people taking on too much debt to buy houses whose prices could stagnate or fall later. Other tools they have to cool demand, like tighter mortgage restrictions, aren’t always working, or are being postponed as authorities try to ensure broader economic growth stays on track.
The Danish central bank recently warned that cheap financing and savings that expanded during the pandemic could lead to people taking on more debt to purchase houses and property prices spiralling upward.
“It is clear that rising [house] prices of between 5% and 10% annually, depending on the market we are talking about, are not sustainable in the long run,” said Karsten Biltoft, assistant governor at the central bank.
In China, regulators have tried tamping down property markets to cool what one senior banking official referred to as a “bubble,” to little avail. Property prices are up 16% over the past year in the city of Shenzhen, for example. In New Zealand, authorities recently tightened mortgage lending standards, with median home prices climbing 23% in February from a year earlier to a record.
In Sydney, where property prices also recently hit records, new mortgage demand is so high that some banks are struggling to keep up, said Christian Stevens, senior credit adviser at mortgage brokerage Shore Financial. Turnaround times for processing mortgage applications have increased from a few days to more than a month in some cases.
“It’s crazy,” he said. “We’ve never been this busy or seen this much inquiry. And it doesn’t look like it’s slowing down anytime soon.”
In the 37 wealthy countries that make up the Organization for Economic Cooperation and Development, home prices hit a record in the third quarter of 2020, according to OECD data. Prices rose almost 5% on the year, the fastest in nearly 20 years.
The U.S. has also seen strong house price appreciation, though economists generally aren’t too worried. Compared with previous periods of housing-market exuberance, buyers have higher credit ratings and are putting down more cash upfront on purchases.
Economists see similar silver linings elsewhere, making a replay of the global 2008 housing crash, which sent the world into recession, unlikely. Hot markets could cool naturally without wider damage as interest rates rise and pent-up demand is met. As in the U.S., much of the buying globally is being driven by real demand rather than speculation, with families looking to upgrade to larger properties in suburban areas as they work more from home.
“There’s been this almost global reset as people have taken a step back during lockdown periods and reassessed their lifestyle,” said Kate Everett-Allen, head of international residential research at Knight Frank.
Strong home-price appreciation also makes homeowners feel wealthier and encourages more spending and construction, as developers build more supply.
However, with equities prices also at or near record highs, some officials are worried that vast amounts of stimulus are pushing asset prices to unsustainable levels in some global cities, which could lead to local market corrections.
The Dutch central bank told The Wall Street Journal that one concern is that sharp property price increases could be forcing households to take on excessive risk to finance home purchases. Prices in the Netherlands, where there is also a housing supply crunch, rose 7.8% last year, after a 6.9% rise in 2019, according to analysts at ING Groep.
Canada’s central bank governor, Tiff Macklem, said in February there were early signs of “excess exuberance” in the Canadian housing market, with prices up 17% on an adjusted basis over a one-year period, according to the Canadian Real Estate Association. Mr. Macklem said officials would be monitoring the situation closely, but dismissed taking measures to rein in sales, saying the economy needed all the support it could get.
Governments say they are also worried about pricing more families out of the market, which could exacerbate economic imbalances that have worsened during the pandemic and potentially drive younger people to put off having children.
In Seoul, where house prices at one point last year were up nearly 15% on an annualized basis, some couples are postponing registering marriages in the hope of making it easier to buy homes. Income thresholds for low-interest mortgages in South Korea are more generous for individuals than couples.
In New Zealand, Sam Hindle, 29, says he and his wife bid on six houses and were rejected for all of them because of competition from other buyers, and eventually agreed to buy a house off-market from a friend.
“It’s just been a nightmare,” said Mr. Hindle, who works in a bank call centre and lives about a four-hour drive from Auckland.
Government officials recently told New Zealand’s central bank that it must consider the impact its policy decisions have on housing, though doing so could complicate rate-setting. The central bank also restricted the volume of high-risk mortgages banks can offer.
Last year, China put new limits on developer financing in the hope of cooling housing prices, but the market has remained frothy. In early March, the chairman of China’s main banking regulator said he was worried about a possible correction in home prices, which could threaten banks’ stability.
Europe’s housing prices have kept climbing despite a much bleaker economic outlook than in the U.S. or China. In part that is because governments have kept supporting families with salary subsidies and moratoriums on loan repayments. It is also because interest rates remain extraordinarily low, with mortgage rates averaging 1.35% across the eurozone.
In Denmark, mortgage holders have been able to borrow money at negative interest, meaning borrowers only pay the bank an administration fee. Negative interest in their favor either gets discounted from the fee or deducted from their mortgage principal.
Michael Stausholm, a Copenhagen real-estate agent, said he has sold 45 homes in less than three months this year, putting him on track to beat last year’s record of 161 sales, despite Covid-19 restrictions.
“A lot of people want to put their money in brick,” Mr. Stausholm said.
Pre-pandemic, the Dutch central bank ruled that banks would need to hold more capital to cover potential losses in mortgage-loan portfolios, but implementation was postponed because of Covid-19. The central bank has also called for the government to gradually phase out tax incentives for homeowners, including mortgage-interest deductions.
Mick ten Bosch, a real-estate agency owner in Amsterdam, said he had 450 people trying to view one house last year, compared with an average of 20 pre-pandemic. This year is even busier, with houses selling for 15% to 20% above asking price, he added.
Teun Kraaij, a 34-year-old entrepreneur, bought a house in an area by the beach near Amsterdam with more space for his two children. While he had enough money to pay the full purchase price outright, his banker advised him to take a mortgage with a 1.2% interest rate.
“It’s so cheap to borrow money nowadays, it doesn’t make sense not to do it,” Mr. Kraaij said.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: March 28, 2021.
This stylish family home combines a classic palette and finishes with a flexible floorplan
Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.
Amrish Maharaj undid a century of hodgepodge alterations while navigating strict conservation rules
Haberfield, a charming slice of suburbia in what locals call Sydney’s “inner west” region, is miles from the landmarks like the Harbour Bridge and the Opera House, and isn’t famous for multimillion-dollar waterfront mansions. What it is known for, however, is fiercely protecting its architectural identity.
After an uproar in the 1970s led by local residents—who were fed up with period homes getting unsympathetic makeovers—the National Trust created the Haberfield heritage conservation area in the mid-1980s. As a result, the suburb of approximately 6,500 people has one of Sydney’s best-kept streetscapes.The heritage designation has been a win for preserving the past, but has created challenges for architects tasked with making Haberfield’s homes more family-friendly, sustainable and sellable.
Architect Amrish Maharaj was hired by his clients, owners Ramy and Sarah Azzam of ML Constructions, to modernise a single-storey Federation dwelling—an era of Australian architecture between approximately 1890 and 1915. Although its bones dated back to the turn of the last century, the Haberfield home, coined Glencoe, had already undergone a number of objectionable changes before conservation rules had come in. The design was stuck between two time periods.
“Its original roof and chimneys had been removed and replaced with a post-1943 hipped roof clad in terracotta tiles. The length of the house had been doubled with the addition of a substantial rear extension. A small skillion roof was put over the front veranda, metal balustrading and the front verandah detailing had also been amended, removing the original timber work,” Maharaj said.
“The previous work appeared to have focused on increasing the number of rooms, and not improving the spaces within,” he added. From the entry, a dark central hallway cut the house in half, splitting four bedrooms and a bathroom to the north from an additional bedroom, an enclosed lounge room, dining room and kitchen to the south.
Despite the patchwork of renovations and extensions over the years, planning regulations still remained strict for the team attempting to bring the residence into the 21st century.
“We had an initial concept, which was a little more modern than the end result, but the local council wanted a more traditional construction. We had a heritage expert come and look at the house and give their recommendations,” he said. “She determined that it was probably part of a group of three or four houses that were once the same beautifully detailed Federation-era homes. But somebody had come along in the 1940s and did their own thing.”
“There was a discussion about pulling off the roof and getting it back to what it was, but it came down to a question of budget. We tried to put back as much as we could, by replacing the front windows with traditional timber, we changed the front path and front fence just to give a little nod to what used to be, without stripping the render and reconstructing the whole roof.”
Now the street appeal of the home is a better fit with its Federation neighbours. The decision was then made to pull focus from the facade while investing attention, and funds, into the rear of the house.
“In keeping with what the Council was wanting, we used traditional materials and techniques in the construction of the back extension even though it does feel very modern,” Maharaj said.
As well as employing conventional methods for the external build of the large rear addition, a host of modern-day luxury finishes were used inside, where the interior design was overseen by owner Sarah Azzam.
High-traffic floors were finished with limestone tiles, Polytec joinery was used throughout, and internal walls feature a sleek white set render. Bathrooms feature Fibonacci Terrazzo tiles with underfloor heating.
A standout of the new look is the grand triangular gable crowning the rear indoor-to-outdoor living zone, a unique design feature in the neighbourhood of smaller sized blocks and heritage homes. The seamless flow to the backyard is an element that has become a must-have in modern Sydney homes thanks to the temperate climate.
“Our work began with the deconstructing and restructuring of the original home. Retaining four good-sized bedrooms to the front of the house, the central areas were dedicated to service spaces, with a big family bathroom, laundry, powder room and en-suite. The home then steps down to a large open-plan kitchen, dining and living room, which seamlessly connects to an al fresco dining area, garden, and a new pool and cabana,” Maharaj added.
“It’s such a Sydney thing, the seamless flow to the outdoors from the main living area. When I think about our briefs, from every single client, I’d say right at the top of everyone’s list is natural light, good ventilation and a connection to the garden,” he said. “Australians also love a north orientation.”
The Azzams, who declined to comment on the project, bought the unrenovated Haberfield house in 2020 for A$2.5 million (US$1.6 million), then sold the reimagined residence in 2023 for A$4.9 million.
“They bought it as their forever home. That large space at the back was created that way because they’ve got a big extended family,” Maharaj said. “They were often talking about Christmas dinners of 20 to 30 people, and space for a grand dining table was specifically on their list of requirements. Sarah has a great design eye and was meticulously hand selecting the finishes. But they ended up seeing another house nearby and decided to do it all again.”
Maharaj shared some more thoughts about the design and build process.
The biggest surprise was… I think we got lucky with the glass gable in the back of the house. We tried to do something similar on a house only a couple of streets away about a year later and it was completely knocked back by Council. When we pushed back to ask why, we were told it should never have been approved as is. Sometimes the approval process includes a bit of luck.
A favourite material we discovered during the process was… Of all the materials, I’d have to say that the Super White Dolomite and the limestone flooring we used were the big hits. We had quite a few potential buyers asking about these items in particular. We have received a number of calls from other homeowners in the area who are looking for a similar renovation, and even the odd call from people who have seen the home and wanted to express how much they loved it.
The most dramatic change was… When we start these jobs, we can often see that the houses have been either abandoned or people have just added and removed rooms and walls over time. So bringing that all back together was really fulfilling for me as an architect. Originally, this house felt like a cold hospital ward when you walked through it, with all these rooms coming off one corridor. Bringing it back to life and making it feel like a home with a heart is something we’re really proud of.
The total cost of the renovation… Being able to do the building himself, and their own interior design meant the pair could save some money, but they really spared no expense. It was a project that cost approximately A$1.5 million.
This stylish family home combines a classic palette and finishes with a flexible floorplan
Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.