The Strategist

Swiss Bank names cties with greatest risk of real estate bubbles

10/02/2020 - 03:08

The Swiss bank UBS has published a new version of the UBS Global Real Estate Bubble Index. The bank’s analysts have studied the prices of residential real estate in 25 major cities around the world.
The highest risk of a “bubble” in the market, as in 2019, was in Munich: the bank's assessment was 2.35. Last year it was 2.01. The second place was taken by the German Frankfurt am Main, which closed the top five in the index of last year. In 2019 its estimate was 1.71, but rose sharply to 2.26 in 2020. Toronto closes the top three, having dropped one line, its estimate changed from 1.86 to 1.96. Other cities at risk of a bubble include Hong Kong, Paris, Amsterdam and Zurich.

The fair level of prices, according to the bank, is observed in Boston, Singapore, Madrid, Warsaw, Milan and Dubai. Moreover, prices are falling in Madrid, San Francisco, Dubai and Hong Kong. Real estate in Chicago is undervalued. The most inaccessible cities for home purchase, where it will take more than 10 years to buy a home, are Paris, London, Singapore, Tokyo, Tel Aviv and New York.

The real estate market is weathering the coronavirus comparatively well, with house price increases this year even accelerating, UBS noted. One of the main trends is that people have begun to change their preferences in choosing housing: because of the widespread remote work, life in the suburbs is becoming more attractive, as opposed to expensive city centers.

The risk of “bubbles” rises during the pandemic as prices continue to rise despite warning signals, UBS says. The rise in prices was caused by state support for household income and the real estate market, along with low key rates and the suspension of bankruptcies, the bank noted.