New study by UBS – There is a risk of a real estate bubble in Zurich
– There is a risk of a real estate bubble in Zurich
Home ownership prices continue to rise. Zurich is one of the world’s most expensive cities. The market is overheating, says an expert.
The demand for residential property has been increasing sharply in major metropolises around the world for years. Bubble risks have now formed in many places. Unsurprisingly, Zurich is also one of the world’s most expensive cities.
Homeownership price growth accelerated to an average of six percent from mid-2020 to mid-2021. This is the highest annual increase since 2014, according to the “UBS Global Real Estate Bubble Index 2021” published on Wednesday, which the big bank collected from 25 cities and published annually.
“Every boom has its limits”
Matthias Holzhey, UBS
UBS has identified urbanization, the corona pandemic, low interest rates, relaxed lending standards for homebuyers and higher savings rates as the causes. In addition, the booming stock markets have released additional equity.
Demand is likely to shift to the periphery
As long as the belief in steadily rising property prices is god-given and interest rates remain low, not much should change in this development, said Matthias Holzhey of UBS on Wednesday. “But every boom has its limits.”
As prices rise, so does debt, and with it the risk of a bubble forming. Interest rates are also likely to rise slightly in the future and the relaxed lending criteria will be tightened again. In addition, higher prices ensured that demand was moving from the cities to the cheaper surrounding areas. However, the experts do not expect a stronger correction.
In Switzerland, the cities of Zurich (5th place worldwide) and Geneva (14th place) are the most expensive places. The market in Zurich is overheated, there is a risk of a bubble and Geneva is “overvalued,” said UBS expert Maciej Skoczek. In the short term, no market correction is expected in either city. But if interest rates rise, the inflated prices could erode. In addition, demand is likely to shift to the periphery due to the high prices in the city centers.
There is also a risk of bubbles in Munich and Frankfurt
What is true of Zurich is even more true of other cities. Frankfurt, Munich, Toronto and Hong Kong have the clearest bubble risk. Stockholm, Amsterdam and Paris as well as Vancouver were also among the cities at risk. An immediate price correction is not imminent as long as the labor market in the cities remains solid and interest rates remain low.
Meanwhile, Dubai is the only undervalued market and also the only one that has been classified in a lower category than in the previous year.