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Can We Avoid Real Estate Bubbles?

world economic forum travel and tourismGeneva (Switzerland) – March 18, 2015 – At this year’s World Economic Forum Annual Meeting in Davos-Klosters, experts from central banks, government, academia and the real estate sector reviewed and finalized recommendations and policy options on how to proceed with the community’s 2015 agenda. Nouriel Roubini, Professor of Economics and International Business, Leonard N. Stern School of Business, New York University, who was part of the Davos discussion, said: “There is increasing evidence of frothiness in a number of housing markets in both advanced economies and emerging markets, including Canada, the UK, Switzerland, France, Sweden, Norway, China, Hong Kong and Singapore among others. We’re also seeing early signs of overheating in a number of credit and equity markets across the world.” In recent years, real estate markets have become more international and the global flows of foreign investment make local markets more susceptible to real asset volatility.

In its first year after launch, the Emerging Horizons on Real Estate – Asset Price Dynamics Initiative, extraordinarily supported by stakeholders from business, academia and central banks, successfully published two key reports: The first, Profiles, Prescriptions and Proposals, provides a general analysis of the asset price dynamics topic from the real estate perspective and concludes with initial high-level industry recommendations. The second, Executive Case Studies, assembles case studies which describe real asset bubbles and attempts to extract lessons for the future. The case study collection represents a valuable evidence base that can inform policy-makers’ understanding of property markets. Many of the studies show how these markets can exacerbate episodes of economic and financial instability. Taken as a collection, they provide a welcome counter to the recent tendency in some quarters to view all risks and instability through the prism of the recent US housing meltdown.

Policy-makers are currently debating whether asset-pricing dynamics can, or should, be managed in the public interest. This global initiative, launched at the World Economic Forum in January 2014 and mandated a multi-year project in January 2015, delves into the mechanisms of asset pricing to learn how to detect when and why bubbles emerge and how consequences can be mitigated. The relevance of the industry initiative on asset price dynamics for policy-makers cannot be overstated. This initiative brings together the expertise and views of a large set of key stakeholders in real estate. Substantial differences between countries and regional fragmentation of real estate markets require tailored approaches that take into account all specific aspects.

The executive case studies presented in this volume are a rich source of insights into the structure of different markets, into the way bubbles have built up, and policy responses. They also demonstrate the relevance of high-quality data for policy-makers. This project will help to prevent history from repeating itself, or at least reducing the adverse consequences when history does repeat itself, given the high economic and social costs of housing boom-and-bust periods.

Colin Dyer, President and Chief Executive Officer of JLL observes that, “Real estate has historically been involved in, but hasn’t been the cause of, major market cycles. They are typically ignited by shocks from outside the sector: financial deregulation, for example, changes in cross-border investment regulations and political events. Once such events occur, real estate often spreads their impact across the economy. The financial crisis revealed problems in both the public and private sectors, sending a wake-up call to market regulators and industry sectors, real estate included. Research like this offers one way to work towards anticipating such problems in the future.”

Michael Max Bühler, Associate Director and Head of Real Estate at the World Economic Forum, said: “Considering the unprecedented interest-rate environment since the global financial crisis, real estate bubbles and their consequences are expected to become more and more relevant. The most destructive cycles were those where asset prices, leverage and credit were intertwined causing the greatest systemic effects. We found that behavioural decision-making is key in understanding asset price dynamics, asset cycles and the linkages with the macro-economy. Within the first year of the project, we built a community by engaging leading experts, central bankers and business from the real estate, investors and financial services industries. This year, the project will focus on effective and practical mitigation solutions, including the social angle of wealth preservation by mitigating asset bubbles, particularly in housing.”

About the World Economic Forum
The World Economic Forum is an international institution committed to improving the state of the world through public-private cooperation in the spirit of global citizenship. It engages with business, political, academic and other leaders of society to shape global, regional and industry agendas.

Incorporated as a not-for-profit foundation in 1971 and headquartered in Geneva, Switzerland, the Forum is independent, impartial and not tied to any interests. It cooperates closely with all leading international organizations (

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