Where International Real Estate Is Booming

Think of countries where the real estate market is booming and the usual suspects come to mind - China, Canada, Switzerland, and the United Kingdom. But which country has the hottest property market right now? The answer will undoubtedly surprise you.

But first, a little background. While real estate comprises both residential and commercial property, the residential or housing market is usually regarded as the best measure to assess the real estate market in a country. This is because the housing market is a vital cog in any national economy. For proof of its importance, one only needs to recall the global “Great Recession” of 2007-08, which was triggered by the implosion of the U.S. housing market during that period.

Because of the importance of the housing market, the International Monetary Fund issues a quarterly report called “Global Housing Watch,” which tracks housing prices in 50 countries. In its October 2014 report, the IMF notes that of these 50 countries, 33 economies are still in recovery mode as far as their housing markets are concerned. House prices in these countries dropped sharply with the onset of the Great Recession and continue to recover slowly, but are on average about 20% lower than they were in 2008. The other group of 17 economies comprises those where the housing market has already rebounded, with prices on average about 25% higher than in 2008. In these countries, house prices declined only modestly in 2007-08 and the subsequent rebound was quick.

In order to identify the countries with the hottest property markets right now, we used data provided in the IMF report. Specifically, we referred to the latest quarterly change in housing prices (first quarter or second quarter of 2014, whichever is available), compared to the price from a year ago, expressed as an annual percent change. Based on this data, here are the Top Ten countries where real estate is booming:

10. Malta – Change in housing prices (Q1*) = +5.2%. The housing market in this little island south of Sicily is recovering strongly thanks to its high population density and culture of home ownership.

9. China – Change in housing prices (Q2) = +5.6%. The Chinese housing market continues to boom, especially in the large cities, despite government measures that are aimed at curbing speculative housing investment.

8. Israel – Change in housing prices (Q1) = +6.1%. The IMF estimates that property prices in Israel are about 25% higher than their equilibrium values, due to low mortgage rates and a shortage of housing supply.

7. New Zealand – Change in housing prices (Q1) = +6.3%. Housing prices have rebounded quickly in New Zealand, due to limited housing stock and geographical constraints that limit housing supply.

6. Turkey – Change in housing prices (Q1) = +6.7%. While the real estate boom has contributed to 30% of Turkey’s GDP since 2002, political and financial turmoil are beginning to affect the property market.

5. Iceland – Change in housing prices Q1) = +6.8%. This small island nation was one of the worst hit by the 2008 global crisis, but its housing market has since recovered thanks to a relatively young population.

4. Australia – Change in housing prices (Q2) = +7.4%. The Australian boom is concentrated in the big cities of Sydney, Melbourne and Perth.

3. United Kingdom – Change in housing prices (Q2) = +8.1%. UK house prices surpassed their 2007 peak in May of 2014 and have gone on to new highs, fuelled by record low mortgage rates.

2. Ireland – Change in housing prices = +9.1% (Q2). Housing prices in Ireland are rising at the fastest pace since 2007, as the market continues to recover from a record slump that led to price for many properties plunging to levels 60% below their 2007 peak.

1. Estonia– Change in housing prices (Q1) = +15.9%. With a population of only 1.3 million, the Baltic nation of Estonia had the hottest property market in 2014, with housing prices in the first quarter up almost 16% (annualized) from a year ago. The economic and housing boom in Estonia, a former Soviet republic that joined the EU and NATO in 2004, has been driven by the highest foreign direct investment per capita in eastern Europe, primarily from neighbors Finland and Sweden.

The Bottom Line

The continued housing boom in a number of countries around the world is being fuelled by mortgage rates that are hovering near record lows. The hottest property markets currently are in nations that were among the worst hit by the recession and housing collapse of 2008, such as Estonia and Ireland. Nevertheless, the magnitude of house price gains is leading to increasing concern about the possibility of this boom turning to bust once mortgage rates begin to rise.

*Figures in parentheses refer to first quarter (Q1) or second quarter (Q2) of 2014.