Zurich is world class. Especially when it comes to house and apartment prices: behind Toronto (Canada) and Frankfurt (D), Zurich is one of the top 3 cities with the highest risk of bubbles in property prices. A dishonorable award.
UBS produces a “Global Real Estate Bubble Index” each year. A study on the risk of price bubbles from the real estate market. The 2022 edition, published on Wednesday, concluded that the relationship between purchase prices and rents in Zurich is uneven.
“House prices in the Zurich region have increased by about 20 percent since the start of the pandemic,” said Mathias Holzhey of UBS at the presentation of the index. “The market is in the bubble risk zone.”
The rise in interest rates is now subjecting house prices to a reality check. Still, according to UBS experts, a price correction is not inevitable in the Zurich region: real estate prices may also gradually normalize, due to continued strong population growth in Zurich’s strong economic zone.
In addition to Zurich, there is a second city among the 25 metropolises with the highest balloon risk worldwide: Geneva. The city of UBS is ranked 15th. House prices are said to be overvalued. Prices have reached a level that is incompatible with current interest rates regarding rents.
Here are the ten cities most at risk of a real estate bubble:
- Toronto Canada)
- Frankfurt, Germany)
- Zurich
- Munich (D)
- Hong Kong
- Vancouver, Canada)
- Amsterdam (Netherlands)
- Tel Aviv, Israel)
- Tokyo, Japan)
- Miami (United States)
Affordable prices in Dubai
Economist Maciej Skoczek says that from mid-2021 to mid-2022, the rise in housing prices in cities surveyed by UBS rose to 10 percent, the highest annual growth rate since 2007. Property prices rose in all cities except Paris, Hong Kong and Stockholm.
Housing markets in Stockholm, Paris and Sydney remained overvalued despite a slight slowdown. In addition to Geneva, London, Madrid and Singapore, the five US cities surveyed (Miami, Los Angeles, San Francisco, Boston and New York) are overvalued. Like Milan, Warsaw and Dubai, Sao Paulo was rated fairly for the first time on the list.
Low interest rate environment accelerated bubble formation
Housing prices in bubble-risk areas have risen five times faster than real income and rents over the past decade, due to low interest rates. In addition, average mortgage interest rates in all analyzed cities nearly doubled compared to their lows in mid-2021. Holzhey says that rising interest rates, inflation and asset losses due to turmoil in financial markets are now reducing purchasing power and therefore demand for additional living space.
Holzhey says there could be price corrections in the next few quarters in very highly rated cities if the economic situation, and above all the job market, deteriorates. However, Zurich and Geneva are less concerned than cities abroad: in the current economic situation, Switzerland is doing much better than the surrounding countries. (SDA/sfa)