UBS Bank ranked the TOP-7 cities with the highest risk of bubble in the global real estate market

UBS Bank ranked the TOP-7 cities with the highest risk of “bubble” in the global real estate market.
Swiss bank UBS published a survey of the real estate market for 2019. In the survey UBS real estate experts indicate which cities on the planet offer fair prices for “concrete gold”, and where there is a high risk of revaluation.

UBS Bank ranked the TOP-7 cities with the highest risk of

UBS Bank ranked the TOP-7 cities with the highest risk of “bubble” in the global real estate market

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 Bubble Index for 2019 puts the housing market into long-term perspective and is designed to track the risk of property price bubbles in global cities.

How to identify a bubble risk? Price bubbles are a regularly recurring phenomenon in property 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 gauges the risk of a property bubble on the basis of such patterns.

What kind of calculation method was implemented? The Bank considers five factors: the price of real estate to income from it and the price of real estate to the value of its rent, changes in the ratio of mortgages to GDP and construction to GDP, as well as a relative indicator of the value of real estate in the city compared to the price in the country. In the understanding of the bank, any city whose indicator is above 1.5 in this index is considered to be at risk of a “bubble”.

The UBS Global Real Estate Bubble Index provides an indication of price-to-income levels across select global cities. This is the basic affordability measure for housing.

In all the cities of the Eurozone monitored by UBS, there was an increase in the index due to low interest rates, the bank said. The average rise in housing prices, however, stopped in Europe for the first time since 2012, while the average index fell slightly in 2019.

Explore the seven cities with the highest bubble risk and their key real estate takeaways for 2019.

7. Paris
2019 indicator: 1.54 | 2018 indicator: 1.44
“Real estate prices in the French capital have reached a new all-time high after a five percent increase over the past four quarters,” the UBS report said.

6. Vancouver
2019 indicator: 1.61 | 2018 indicator: 1.92
“In just a couple of quarters, year-on-year price growth rates have changed from 10% to minus 7%,” the UBS report said. High pricing and over-availability make the market vulnerable even to minor changes in demand.

5. Frankfurt
2019 indicator: 1.71 | 2018 indicator: 1.43
“The housing market in Frankfurt over the past 10 years has been characterized by accelerating price increases, which annually outperformed the national average,” the UBS report said. And he continues: “Last year, real prices rose by 11%, which is the highest figure among the cities described in this report.”

4. Amsterdam
2019 indicator: 1.84 | 2018 indicator: 1.65
“Amsterdam recorded the strongest price increase in all cities in the study since 2015,” bank experts say. On average, real prices increase by almost 10% per year, outpacing the rate of revenue growth.

3. Hong Kong
2019 indicator: 1.84 | 2018 indicator: 2.03
“Encouraged by high investor demand, a general positive mood and fear of missing out on capital gains, the real price level in Hong Kong has more than doubled from 2008 to 2018,” UBS said. Nevertheless, according to analysts, weaker economic forecasts cooled the mood of buyers in the residential sector.

2. Toronto
2019 indicator: 1.86 | 2018 indicator: 1.95
“Actual housing prices in the city almost tripled from 2000 to 2017,” the bank’s report says. As in Vancouver, local authorities have introduced taxes for foreign buyers, control over rents and tightened mortgage standards to reduce the availability of real estate.

1. Munich
2019 indicator: 2.01 | 2018 indicator: 1.99
“Estimation in the housing market has risen sharply due to a strong and well-diversified local economy, steady population growth and insufficient supply of new buildings,” the report said. UBS adds that real prices have more than doubled over the past 10 years, while real rents have increased by 40%.

Sources: https://www.ubs.com/global/en/wealth-management/chief-investment-office/life-goals/real-estate/2019/global-real-estate-bubble-index-2019.html

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