Analysts of a famous Swiss bank has published an annual study for 2021. They have identified big cities where the risk of a rea estate bubble is particularly high. And they also told about those places where property is distinguished by fair prices.
Rating. The housing market, as a rule, is one of the most stable and important elements of any modern economy. The UBS Global Real Estate Index for 2020 evaluates the global real estate market in the long term and is designed to track the risk of a bubble in the biggest cities of the world.
What is a "bubble"? Bubbles, according to UBS, are a regularly recurring phenomenon in real estate markets. The term "bubble" refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proven unless it bursts. The UBS Global Real Estate Bubble Index measures the risk of a bubble in the real estate market based on such models.
How it has been counted? The Bank considers five factors: the price of real estate to income from it and the price of real estate to the cost of renting it, changes in the ratio of mortgages to GDP and construction to GDP, as well as the relative value of the city's real estate compared to the price in the country. In the understanding of the bank, any city whose index is higher than 1.5 on this index is considered to be at risk of a real estate bubble.
Trends:
- The growth of housing prices in the analyzed cities accelerated from mid-2020 to mid-2021 to 6%, which was the most significant indicator since 2014. Double-digit price increases were recorded in Moscow, Stockholm, Sydney, Tokyo and Vancouver.
- Six out of nine cities at risk of a bubble are located in Europe. Stockholm and Moscow are among three cities with the most significant increase in the imbalance compared to last year. At the same time, none of the US cities is characterized by overvalued real estate.
- Households have to take out large loans to cope with high housing prices. As a result, the level of mortgage lending has increased significantly in recent quarters. It is supported by relaxed loan rules and declining interest rates.
- For the first time since the 1990s, housing in suburban and rural regions is becoming more expensive than in cities. The cost-benefit ratio of urban life deteriorated sharply during the pandemic, as entertainment and shopping took a back seat, and offices were abandoned.
- Coronavirus restrictions and the growth of remote work have led to a drop in rental rates. In some cities, there has been a double-digit decline in rental prices.
Top-9 cities at risk of a bubble:
- Frankfurt, Germany
- Toronto, Canada
- Hong Kong
- Munich, Germany
- Zurich, Switzerland
- Vancouver, Canada
- Stockholm, Sweden
- Paris, France
- Amsterdam, Netherlands
In 2021, UBS analysts identified only three cities where real estate prices can be called fair. These are Madrid, Milan and Warsaw.
The market of Dubai ha turned out to be the most undervalued one.
Source: UBS
Photo: Dimitry Anikin
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