You can enable subtitles (captions) in the video player
Just going to
OK.
So how can we tell if rising prices are genuine or a bubble?
OK. This is a really interesting one because people tend to use the word bubble a lot when they're talking about high property prices. But there's a question of, is there actually a reason for those high prices, or is it a house of cards that could collapse?
We're clearly getting to a point where investors have got to start thinking, how much further is there to go? Property prices can only go so high. Property yields can only go so low.
There's a couple of things that we look for in real estate to see if there's a bubble, and one of them is excess lending - definitely a feature before the financial crisis. The other is excess construction. Now, a lot of markets, at the moment, analysts say, are much calmer in both of those respects than they were before the crisis. To some extent, people have learned their lesson.
And in 2006, 2007, when people started defaulting, financial institutions, who no one had any idea had exposure to the real estate market, suddenly found themselves in real trouble. There were lots of people carrying a lot of debt. But none of them are, you know, banks, deposit-taking institutions, the kind of people who we bailed out in 2007. They're property funds, individual investors. No one's counting on these people to be there to cash their paychecks.
You know, they don't play a systemically important role in the financial system. The problem with that is that systemically important roles in the financial system are much, much easier to spot in hindsight. What happened in 2007 was that a lot of people, who we thought were unimportant, turned out to be really, really important. And maybe that will turn out to be true, now. It's really, really hard to say in advance.
One of these areas where it looks like we have had excess building is high-end apartments in global cities, which has the sort of added side effect of making people very angry because there aren't enough affordable homes. And now, we've got too many luxury homes. How does that work? So that definitely was a bit of a bubble which has sort of burst or is bursting. There may well be more.
This is sort of a classic late-cycle play for investors. They're looking for safety at the moment, rather than looking for massive capital growth. Is this a bubble? It might turn out to be. But it's really too soon to decide whether or not this is one of those situations, which will, ultimately, go pop.
