The “majority of world cities are significantly overvalued” says UBS in its Global Real Estate Bubble Index, as it charts the imminent risk of price drops in key global hubs.
Through quantitative easing, central banks have more than tripled the global monetary base since 2008. This gigantic cash injection has lowered real interest rates and slowed the global housing market corrections that began in 2007. The average price decline amounted to 30% in real terms. However, this did not offset the preceding price increase of 130% since the mid-1990s. The correction was thus milder than in previous cycles, setting the stage for today’s overheating housing markets.
When inexpensive nancing is combined with bullish expectations, real estate prices eventually uncouple from the real economy. We have seen this in the current cycle, particularly in the world’s leading nancial centers, where housing prices are now, in many cases, fundamentally unjustified. The risk of a real estate bubble in these cities has risen sharply. While it is not always possible to prove conclusively the existence of a bubble, it remains essential to identify the signs of one early on.
This is why we publish the UBS Global Real Estate Bubble Index, to analyse the severity of various bubble symptoms in selected global nancial centres. Here we show the cities in which the imbalances are the most distinct.
We hope you find it an engaging read.
- Claudio Saputelli
Head Global Real Estate Chief Investment Office WM
- Matthias Holzhey
Head Swiss Real Estate Investments Chief Investment Office WM
Read Deutsche Bank’s in-depth analysis of London’s property market on the brink of a fall on PrimeResi here.