House Prices Are Inflating Around The World
Share Button

House Prices Are Inflating Around The World

Pandemic-related stimulus and ultralow rates are turbocharging markets from Europe to Asia.

By Mike Cherney and Patricia Kowsmann
Mon, Mar 29, 2021 1:30pmGrey Clock 5 min

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.



MOST POPULAR

What a quarter-million dollars gets you in the western capital.

Alexandre de Betak and his wife are focusing on their most personal project yet.

Related Stories
Property
I.M. Pei’s Son Speaks of His Father’s Legacy of Creating ‘Places for People’ Ahead of a Retrospective in Hong Kong
By ABBY SCHULTZ 12/06/2024
Property
THE EAST COAST CAPITAL SETTING THE PACE IN THE AUSTRALIAN REAL ESTATE MARKET
By Robyn Willis 06/06/2024
Property
Penthouse by Dubai’s Iconic Burj Khalifa Sells for AED 139 Million
By LIZ LUCKING 05/06/2024
By ABBY SCHULTZ
Wed, Jun 12, 2024 5 min

I.M. Pei was the confident visionary behind such transformative structures as the Bank of China Tower in Hong Kong and the Louvre Pyramid in Paris, but he was also humble, and for years resisted a retrospective of his work.

Pei, a Chinese-American architect who died in 2019 at 102 , would always protest any suggestion of a major exhibition, saying, “why me,” noting, too, that he was still actively at work, recalls his youngest son, Li Chung “Sandi” Pei. A decade ago, when Pei was in his mid-to-late 90s, he relented, finally telling Aric Chen, a curator at the M+ museum in Hong Kong, “all right, if you want to do it, go ahead,” Sandi says.

A sweeping retrospective, “I.M. Pei: Life Is Architecture,” will open June 29 at M+ in the city’s West Kowloon Cultural District. The exhibition of more than 300 objects, including drawings, architectural models, photographs, films, and other archival documents, will feature Pei’s influential structures, but in dialogue with his “social, cultural, and biographical trajectories, showing architecture and life to be inseparable,” the museum said in a news release.

As a Chinese citizen who moved to the U.S. in 1935 to learn architecture, Pei—whose full first name was Ieoh Ming—brought a unique cultural perspective to his work.

“His life is what’s really interesting and separates him from many other architects,” Sandi says. “He brought with him so many sensibilities, cultural connections to China, and yet he was a man of America, the West.”

Facade of the Bank of China Tower in Hong Kong in a photograph commissioned by M+ in 2021.
© South Ho Siu Nam

Pei’s architectural work was significant particularly because of its emphasis on cultural institutions—from the East Building of the National Gallery of Art in Washington, D.C., to the Museum of Islamic Art in Doha, Qatar—“buildings that have a major impact in their communities,” Sandi says. But he also did several urban redevelopment projects, including Kips Bay Towers in Manhattan and Society Hill in Philadelphia.

“These are all places for people,” Sandi says. “He believed in the importance of architecture as a way to bring and celebrate life. Whether it was a housing development or museum or a tall building or whatever—he really felt a responsibility to try to bring something to wherever he was working that would uplift people.”

A critical juncture in Pei’s career was 1948, when he was recruited from the Harvard Graduate School of Design (where he received a master’s degree in architecture) by New York real estate developer William Zeckendorf.

With Zeckendorf, Pei traveled across the country, meeting politicians and other “movers and shakers” from Denver and Los Angeles, to Philadelphia, Washington D.C., Boston, and New York. “He became very adept at working in that environment, where you had to know how to persuade people,” Sandi says.

During the seven-year period Pei worked with Zeckendorf, the developer fostered the growth of his architecture practice, supporting an office that included urban, industrial, graphic, and interior designers, in addition to architects and other specialists, Sandi says.

When Pei started his own practice in 1955, “he had this wealth of a firm that could do anything almost anywhere,” Sandi says. “It was an incredible springboard for what became his own practice, which had no parallel in the profession.”

According to Sandi, Chinese culture, traditions, and art were inherent to his father’s life as he grew up, and “he brought that sensibility when he came into America and it always influenced his work.” This largely showed up in the way he thought of architecture as a “play of solids and voids,” or buildings and landscape.

“He always felt that they worked together in tandem—you can’t separate one from the other—and both of them are influenced by the play of light,” Sandi says.

View of the National Center for Atmospheric Research, on the mesa, in a photograph commissioned by M+ in 2021.
© Naho Kubota

Pei also often said that “architecture follows art,” and was particularly influenced by cubism, an artistic movement exploring time and space that was practiced in the early 20th century by Pablo Picasso, Georges Braque, and the sculptor Jacques Lipchitz, among others. This influence is apparent in the laboratory at the National Center for Atmospheric Research in Boulder, Colo., and at the Everson Museum of Art in Syracuse, N.Y. “Those two buildings, if you look at them, have a play of solid and void, which are very cubistic,” Sandi says.

Yet Sandi argues that his father didn’t have a specific architectural style. Geometry may have been a consistent feature to his work, but his projects always were designed in response to their intended site. The resulting structure emerged as almost inevitable, he says. “It just was the right solution.”

Pei also intended his buildings “not only to be themselves a magnet for life,” but also to influence the area where they existed. “He never felt that a building stood alone,” Sandi says. “Urban design, urban planning, was a very important part of his approach to architecture, always.”

After he closed his own firm to supposedly “retire” in the early 1990s, Pei worked alongside Sandi and his older brother, Chien Chung (Didi) Pei, who died late last year, at PEI Architects, formerly Pei Partnership Architects. Pei would work on his own projects, with their assistance, and would guide his sons, too. The firm had substantial involvement in the Museum of Islamic Art, among other initiatives, for instance, Sandi says.

Working with his father was fun, he says. In starting a project, Pei was often deliberately vague about his intentions. The structure would coalesce “through a process of dialogue and sketches and sometimes just having lunch over a bottle of wine,” Sandi says. “He was able to draw from each of us who was working on the project our best efforts to help to guide [it] to some kind of form.”

The M+ retrospective, which will run through Jan. 5, is divided into six areas of focus, from Pei’s upbringing and education through to his work in real estate and urban redevelopment, art and civic projects, to how he reinterpreted history through design.

Sandi, who will participate in a free public discussion moderated by exhibition co-curator Shirley Surya on the day it opens, is interested “in the opportunity to look at my father anew and to see his work in a different light now that it’s over, his last buildings are complete. You can take a full assessment of his career.”

And, he says, “I’m excited for other people to become familiar with his life.”