What to do with all that money This is what major investors all over the world are asking. It is poorly taken care of at the bank. Many banks are currently charging negative interest rates. Instead, large investors prefer to invest their money in real estate in cities. The demand for residential property has been increasing sharply in major metropolises around the world for years.
Homeownership price growth accelerated to an average of six percent from mid-2020 to mid-2021. This is the highest annual increase since 2014, as UBS writes in its report on the Global Real Estate Bubble Index 2021.
Rising interest rates could be dangerous
In Switzerland, the cities of Zurich and Geneva are the most expensive places. The market in Zurich is overheated. “There is a risk of a bubble,” said UBS. Geneva is also “overrated,” says UBS expert Maciej Skoczek. In the short term, no market correction is expected in either city. But if interest rates rise, the inflated prices could erode.
UBS cites not only low interest rates as the causes: urbanization, the corona pandemic, relaxed lending standards for home buyers and higher savings rates are also reasons for real estate overheating. In addition, the booming stock markets have released additional equity.
“Every boom has limits”
As long as the belief in steadily rising real estate prices is god-given and interest rates remain low, not much should change in this development, said Matthias Holzhey of UBS on Wednesday at a conference call. “But every boom has its limits.”
As prices rise, so too does debt, and with it the risk of a bubble forming. Interest rates are also likely to rise slightly in the future and the relaxed lending criteria will be tightened again. In addition, higher prices ensured that demand was moving from the cities to the cheaper surrounding areas. However, the experts do not expect a stronger correction or even a bursting of the bubble.
Highest risk in Frankfurt
What is true of Zurich is even more true of other cities. Frankfurt, Munich, Toronto and Hong Kong have the clearest bubble risk. Stockholm, Amsterdam and Paris as well as Vancouver were also among the cities at risk. An immediate price correction is not imminent as long as the labor market in the cities remains solid and interest rates remain low.
Madrid, Milan and Warsaw were still rated fairly, with Milan and Madrid being hit hard by the pandemic. The housing market in Inner London has also suffered greatly from the consequences of the pandemic, but is still overvalued.
Only Dubai is undervalued
All of the US cities examined – Miami, Los Angeles, San Francisco, Boston and New York – are in the “overrated” range. There are major imbalances in the housing markets of Tokyo, Sydney, Geneva, London, Moscow, Tel Aviv and Singapore.
Meanwhile, Dubai is the only undervalued market and also the only one that has been classified in a lower category than in the previous year. (gif / SDA)