Real estate bubbles are notoriously difficult to detect on time – all too often, investors realise the danger only once the bubble has burst. There are, however, warning signs such as property prices being out of sync with income and over-construction. With these signs in mind, UBS has complied its annual rankings of the world’s most likely real estate bubbles in 2021.
The survey looks at the property markets in 25 global cities, traditionally popular with real estate investors. It finds that house prices rose by 6% globally between mid-2020 and mid-2021, the highest increase since 2014. All but 4 of the 25 cities experienced rises in prices and 5 posted double-digit upticks.
Europe flashing red for danger
European cities dominate the ‘extreme risk’ category, depicted in red in the report. Of the 9 locations in the red zone, 6 are in Europe. Germany ranks with 2 of its largest cities, Frankfurt and Munich, while other candidates for a real estate bubble this year include Zurich, Stockholm, Paris and Amsterdam.
Frankfurt real estate has the most considerable risk of a bubble bursting this year. The UBS Index reports that prices in the city have gone up by 10% a year since 2016. This is the highest hike of the 25 cities.
Canadian cities in the real estate bubble zone
UBS deems both Toronto and Vancouver as at risk of a real estate bubble this year. Toronto takes second position in the table, while Vancouver, a city that frequently registers double-digit price rises, sits in sixth place.
Three US markets join the duo. Miami, Los Angeles and San Francisco all sit in the yellow zone, designated as having over-valued property in 2021.
Highest price rise of all
Although price rises aren’t the only factor contributing to a real estate bubble, they count as one of the most important. In this year’s Index, Moscow real estate registered the highest increases in value. In the Russian capital, prices have gone up by 20%, the highest of the 25 cities. This increase puts Moscow into the over-valued property zone.
At the other extreme
21 of the 25 cities listed in the Index have experienced an increase in prices over the last year. Of the remainder, only one registered a negative score in the UBS Index.
A hotspot for global property investment less than a decade ago, Dubai is now the only city with a negative score. According to the report, prices have decreased steadily over the last few years and are now 40% below their 2014 benchmark.