In its study issued on Wednesday, the bank indicated that Dubai is the only real estate market that is expected to move against the trend during the coming period, as it is one of the least undervalued markets.
The study indicated that the decline in prices in Dubai continued until the end of 2020, pointing out that the improvement in the ability to buy homes, the facilitation of mortgage systems, the rise in oil prices, and the economic recovery has finally begun to witness a recovery. She explained that the real estate market prices reached their peak and the quantities supplied fell to a record low level.
The study showed that cities such as Frankfurt, Toronto and Hong Kong top the index this year, with the three cities receiving the most pronounced real estate bubble risk assessments in the housing markets analyzed.
The study indicated that the risks also increased in Munich, Zurich, Vancouver and Stockholm, as these cities returned to the risk of a real estate bubble.
The list was completed with the addition of cities such as Amsterdam and Paris, and all the US cities that were evaluated, including Miami, Los Angeles, San Francisco, Boston and New York – entered the overpricing area.
According to the study, imbalances increased in the housing markets as well in Tokyo, Sydney, Geneva, London, Moscow, Tel Aviv and Singapore.
According to the study, the rise in housing prices accelerate to 6% in inflation-adjusted prices from mid-2020 to mid-2021. All but four cities experienced a rise in home prices – Milan, Paris, New York and San Francisco. A double rise was also recorded in five cities: Moscow, Stockholm and Pacific cities; Sydney, Tokyo and Vancouver. A set of special circumstances led to the mentioned price hike.
“The coronavirus pandemic has locked many people inside the walls of their homes, increasing the importance of where they live and increasing the willingness to pay for housing,” said Claudio Sabotelli, Head of Real Estate at UBS Global Wealth Management’s Principal Investment Office.
The low user cost of owning a property compared to renting at the present time, coupled with the expectation of constantly increasing property prices, makes property ownership seem attractive to families regardless of price levels and financial leverage. This fundamental reason may keep markets operating for the time being, outstanding mortgage growth has accelerated almost everywhere in the last four quarters, and debt-to-income ratios have risen.
Housing markets have become more dependent on significantly lower interest rates, so the tightening of lending standards could lead to a sudden stop in rate hikes in most markets.
According to the index, in addition to lower financing costs, urbanization has been a mainstay for the rise in real estate prices in city centers in the past decade. However, city life has taken a major hit as a result of the lockdowns. Economic activity has also spread out of city centers towards their suburbs and thus, for the first time since the early 1990s, real estate prices have risen in non-urban areas.
According to the index, although some of the effects may be transient, this reflection weakens the case of the high prices of semi-secured real estate in city centers.
The repercussions of this development are likely to increase in areas experiencing stagnation or shrinkage of the population, where supply will be easier to keep pace with demand.
“It seems that the waning charm of the urban housing market will remain the most likely in the long term even as interest rates continue to fall,” said Matthias Holzi, lead author of the study and head of Swiss real estate for global wealth management at UBS.