Editor in chief at IamExpat Media
Low interest rates and high demand have caused costs to spiral on Germany’s housing market. When the market becomes too overheated, however, it runs the risk of forming an unsustainable - and therefore precarious - property price bubble. According to a new study, this risk is highest in one German city.
The market for real estate in Frankfurt am Main is more overheated than in any other metropolitan region in the world. That’s the conclusion of a new study by UBS - a Swiss bank - which found that Germany’s financial centre is running a high risk of bubbles.
Adjusted for inflation, the cost of buying a house in Frankfurt has risen by 10 percent each year since 2016, while rents have risen by almost 3 percent every year, according to UBS.
The study, which looked at the period from mid-2020 to mid-2021, also identified a strong risk of bubbles in Toronto and Hong Kong. UBS further pointed to Munich, Zurich, Vancouver, Stockholm, Amsterdam and Paris as cities with bubble risk, with chief investment strategist Maximilian Kunkel advising people to exercise caution at the moment.
In Munich - which in 2019 topped the index as the most overheated real estate market in the world - price growth has actually come to a standstill, UBS researchers noted. Instead, growth is increasingly taking place in the suburbs.
In fact, this trend was observable in other cities like Frankfurt all around the world. “City life became less attractive after the lockdowns,” the report stated. “Economic activity has partly shifted from the city centres to the outskirts and satellite towns - and with it the demand for residential property.” The researchers noted that in 2020 to 2021, for the first time since the beginning of the 1990s, prices rose faster outside the cities than inside.
The UBS Global Real Estate Bubble Index is an annual study, looking at residential property prices in 25 major cities around the world and determining which are “substantially and sustainedly mispriced”. This is established by comparing house price valuations with several key figures, including the ratio of house prices to salaries, average rents, and national average house prices.
Overall, the study found that inflation-adjusted house prices grew by 6 percent from mid-2020 to mid-2021. All but four cities included in the index - Milan, Paris, New York and San Francisco - saw house prices increase. Some cities even recorded double-digit growth.
According to the 2021 Global Real Estate Bubble Index, the following cities are the most overpriced in the world:
For the full report, visit the UBS website.