Capital bubble warning

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Capital bubble warning

UBS has warned retail investors of a “substantial price correction” in London’s housing market, if the fundamentals for real estate investment deteriorate.

The 16-page UBS Global Real Estate Bubble Index said average real dwelling prices in London had increased by almost 40 per cent since the beginning of 2013.

These increases, the report stated, made London one of the most expensive cities in the world based on price-to-income and price-to-rent ratios, which are now at all-time highs.

The report said: “Foreign demand and demand deriving from safe-haven seekers largely explain current valuations.

“Domestic buyers too have contributed to the appreciation. The ‘help-to-buy’ scheme, alluring yields on buy-to-let investments and ongoing population growth have stoked demand.

“We advise caution as the UBS Global Real Estate Bubble Index, as well as the cross-sectional benchmarks, point to the risk of a substantial price correction should the fundamentals for real estate investment deteriorate.”

According to UBS’s research, it takes a skilled service-sector worker around 14 years of average earnings to be able to buy a 60m squared home in London.