Cracks appearing at the top end

Global Real Estate Bubble Index

November 2018 | 5 min read

How to identify a bubble?

Typical signs of a bubble include a decoupling of prices from local incomes and rents, and imbalances in the real economy, such as excessive lending and construction activity.

The UBS Global Real Estate Bubble Index gauges the risk of a property bubble on the basis of such patterns. The Index does not predict whether and when a correction will set in. A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a decline in house prices.

In which global city is the greatest bubble risk?

Bubble risk appears greatest in Hong Kong, Munich, Toronto, Vancouver, London and Amsterdam. Major imbalances also characterize Stockholm, Paris, San Francisco, Frankfurt and Sydney.

Affordability is again a sensitive topic. Buying a 60m2 apartment in most world cities exceeds the budget of most people who earn the average annual income paid in the highly skilled service sector. We discover house markets in major cities and show where you need to work the longest to afford a 60m2 flat.


Is real estate still affordable?

Buying a 60m2 apartment exceeds the budget of people who earn the average annual income in the highly skilled service sector in most world cities. On average, a highly skilled person needs to put up 6 years' salaries to afford a 60m2 flat in Frankfurt. Ten years ago it was just about 4.

In comparison:

A person needs to summon up 8 years' salaries to afford a 60m2 flat in Munich - in Hongkong it's even 22 year.


Rent or buy?

A 60m2 flat in Munich needs to be rented for 35 years to be fully paid. Ten years ago it was just 25 years. Looking at the price-to-rent ratios around the globe, Munich holds the 4th position.

In comparison:

A flat of the same size in Frankfurt needs to be rented for 30 years to be fully paid. Ten years ago it was just 25 years.

And Zurich occupies the top position. Living in the Swiss city 36 years of paying rent are needed to fully pay for a 60m2 flat. Ten years ago it was just 26 years.

The number of years a flat of the same size needs to be rented to pay for the flat

Source: UBS. Remark: For explanation see the section on Methodology & data on page 22. * Uncertainty range due to differing data quality

You'll find more fascinating facts and figures within the full report.


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