The biggest real estate bubbles in the world in 2021
Bubbles in the real estate market in 2021.
The map below, based on data from the UBS Real Estate Bubble Index, serves as an early warning system by ranking 25 global cities and ranking them based on bubble risk.
Reading signals
Bubbles are difficult to discern in real time as investors must judge whether the market price accurately reflects what will happen in the future. However, there are some signs to watch out for.
As one example, a common red flag is the separation of prices from local revenues and rents. In addition, imbalances in the real economy, such as excessive construction activity and lending, may signal a bubble is in the making.
With that in mind, which global markets are most at risk of bubbles?
Geography of real estate bubbles
Europe is home to a number of cities at excessive bubble risk, with Frankfurt topping the list this year. In Germany’s financial heartland, real house prices have risen by an average of 10% per year since 2016, the highest of any city assessed.
Two Canadian cities also found themselves in the bubble zone: Toronto and Vancouver. In the first case, almost 30% of purchases in 2021 were made by multi-property buyers, showing that real estate investment is alive and well. Despite attempts by the authorities to cool these hot urban markets, Canadian markets have recovered and continued to grow. In fact, over the past three decades, residential property prices in Canada have grown at the fastest rate in the G7.
Despite civil unrest and concerns about new policies, Hong Kong still ranks second in this index. Meanwhile, Dubai is listed as “undervalued” and is the only city in the index with a negative score. Residential property prices have risen over the past six years and are now down nearly 40% from 2014 levels.
Uptrend
Overheated markets are nothing new, even though the “pandemic” has changed the dynamics of real estate markets.
For years, rising house prices in the city centers were all but guaranteed as construction boomed and people aspired to embrace the urban lifestyle. Teleworking opportunities and shrinking offices are changing the equation of value for many, and as a result, housing prices in suburban areas have risen faster than those in cities for the first time since the 1990s.
However, these changing priorities have not led to a deterioration in the real estate market in the global cities of the world. You can see its growth rate in 2021 and a comparison with the last five years in the source material at the link below.
In general, prices rose almost everywhere. All of the above cities, except for four – Milan, Paris, New York and San Francisco, they showed positive growth compared to last year.
While property bubbles continue to rise in 2021, there is an element of uncertainty. The debt-to-income ratio continues to rise, and lending standards, which were eased during the pandemic, are being tightened again. Add to that the social shifts that are happening right now, and predicting the future of these markets becomes more difficult.
In the short term, we may see what UBS calls “the era of urban outpacing” come to an end.
Bubbles in the real estate market in 2021.
