Which are the most overpriced property markets in the world, or should we say, the riskiest? The UBS Global Real Estate Bubble Index attempts to find an answer.
The UBS Global Real Estate Bubble Index has historically tracked housing bubbles in the world’s biggest cities. The conclusions drawn from the report are very clear – if you’re looking to sell your apartment in Sydney, Australia fast, or have properties for sale in San Francisco, USA well, we can now say that you couldn’t have picked a better time to sell.
Valuations are stretched across the world, in all major cities. Geneva, Paris, Zurich, Frankfurt and Amsterdam have witnessed the highest increases in apartment prices. New York and Boston, on the contrary, are valued fairly. Chicago is interestingly one of the most undervalued cities in the developed world.
UBS has given a score to all cities that are considered to be overvalued. A score between 0.5 and 1.5 indicates that the city is overvalued, and a score of 1.5 and above indicates a serious threat from a possible housing bubble.
Based on this, here are the most overvalued cities in the world.
#1: London: London occupies the top position in the UBS Global Real Estate Bubble Index with a score of 1.88. This is serious bubble territory. The demand for properties in London is largely fuelled by foreign investors. London has the highest price-to-rent and price-to-income ratios in the world. However, the recent Brexit referendum where the UK voted to leave the European Union might serve to cool down the market a bit.
#2: Hong Kong: Hong Kong has a score of 1.67 on the UBS Global Real Estate Bubble Index. This indicates there is a risk of a housing bubble in Hong Kong, which is not surprising, considering that the real housing prices here have been very volatile over the past 10 years. There is a strong question mark over the future of Hong Kong as a global city because of the increasing number of crackdowns on the freedom of expression there by the local administration. Home prices in Hong Kong are expected to decline by 10 percent this year.
#3: Sydney: Sydney scores 1.39 on the UBS Global Real Estate Bubble Index. This means it is overvalued, but there’s no serious threat of a housing bubble as yet. There’s a great demand for properties for sale in Sydney, Australia from Chinese buyers – who are considered to be the main reason why the housing markets in Sydney and Melbourne have grown by double digits the past 10 years.
#4: Vancouver: Vancouver has a score of 1.35 in the UBS Global Real Estate Bubble Index. Home prices here have risen by 25% since 2006. Vancouver’s rising property prices have been largely fuelled by the huge interest from Chinese investors.
#5: San Francisco: San Francisco scored 1.15 on the UBS Global Real Estate Bubble Index, which makes it the most overvalued city in the United States. Home prices in San Francisco have risen much faster than the overall US market because the tech boom in California since 2011. Another reason for the high property prices here is the mismatch between demand and supply – the demand is much higher than the supply.