Only 3 places in the world can still crack
Raising interest rates to tame inflation also had at least one side effect: the risk of a property bubble bursting was greatly reduced. According to the latest edition of Swiss bank UBS’s UBS Global Real Estate Bubble Index, which has been in the works for more than 20 years, in 2024 there are only three markets left where such a risk still exists: Miami, Tokyo and Zurich.
Last year there were five, and those cities also included Los Angeles and Toronto. This year, however, the real estate markets there have been placed by the bank in the “overvalued market” category.
A property bubble burst means that for a short time house prices, which were very high,
drop sharply by 30-40%
and this puts banks, sellers and borrowers in a very difficult situation.
In our country, this has happened only once – in 2009, when real estate prices collapsed in just one or two quarters by about 40% and remained at this low for several years.
Recently, there has been talk of inflating a real estate bubble in our country, but the ranking in question does not deal with Bulgaria and Sofia at all. The reason is that despite the relatively high growth of property prices in our country
they start from a low base
and the offer prices cannot at all be compared with those in Zurich, Paris or London.
The only European market in which there is any risk of a property bubble, according to the bank, is Zurich, where property prices have risen by 25% in just the two years immediately following the pandemic. There is another peculiarity – there, everything newly built is bought immediately by funds and companies, without ever going on the market.
Miami is the world’s most threatened housing bubble. However, the situation there has little in common even with that of the most developed markets in Europe. In Miami, there is limited development of waterfront residential properties that are mind-bogglingly priced, and demand from the wealthy is very high, resulting in an unprecedented 50% price increase in the two years since the pandemic. There are quite a few rich people living in Miami because it is one of the few large American cities with a nice climate and with tax preferences for income taxation.
In the Japanese capital, the situation is different from the one in the USA – it is traditional there
the property market is one of the most inaccessible in the world
even for rich people. Only 4-5 years ago, well-paid specialists in Tokyo received salaries that allowed them to buy a 60-square-meter apartment with 5 years’ wages. Now that takes 15 years of wages
The bank’s criteria do not only include property prices. Also looked at is the price-to-median income ratio, the difference between the price to buy and rent, and the ratio between mortgages and gross domestic product.
So it turns out that there are 14 cities in the world in which, if not a real estate bubble, then at least there are overpriced homes (see the infographic).
There are only five of them in Europe: Geneva, Amsterdam, Frankfurt, Madrid and Munich.
The situation in Amsterdam is most interesting. Between 2012 and 2022
real house prices in Amsterdam have doubled,
sharply separating this city from other regions in the Netherlands. However, high mortgage rates and inflation have severely reduced the ability of households to buy homes, and this has at one point caused house prices to fall by 15% in real terms between 2022 and 2023. In other words, the risk of a housing bubble is gone even then. But subsequently, housing prices went up, but not so much, but only enough to place the city in the “overpriced market” category.
In Madrid, real rents have risen by 15% over the last four quarters. And real home prices increased by 5% between mid-2023 and mid-2024 despite unfavorable financing conditions.
According to the same ranking
property prices in London and Paris are quite normal
In London in particular, the historic peak in house prices was in 2016 and since then they have lost a quarter of their value. The Bank of England is currently expected to cut interest rates, which could revive demand.
Real house prices in Paris increased by 30% between 2015 and 2020. However, demand there also fell due to the subsequent increase in property tax.