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Only Four Of The World’s 25 Largest Cities Fall Into The “Fair-Value” Category, And Dubai Is One Of Them.
According to a report released on Wednesday, the real estate market in Dubai fairly valued. Moreover, does not face a bubble risk, despite other major cities around the world experiencing price bubble-like conditions with highly elevated prices.
The UBS Global Real Estate Bubble Index 2022, an annual report by UBS Global Wealth Management’s Chief Investment Office finds. That Toronto and Frankfurt’s housing markets are significantly unbalanced, with prices out of step with rising interest rates. Tel Aviv, Tokyo, Zurich, Munich, Vancouver, Amsterdam, Hong Kong, and Hong Kong all have increased risks.
The imbalance is more obvious in Miami and Los Angeles than in Boston, San Francisco, and New York. But all five of the cities studied in the US are in the overvalued region. Despite some cooling trends, Paris, Stockholm, and Sydney housing markets continue to be overvalued. Geneva, Madrid, London, and Singapore are other cities with housing markets that appear to be overvalued. Along with Warsaw and Sao Paulo, Milan, is fairly valued. Despite a strong year, the housing market in Dubai is also in the fair-value territory, according to the report.
According to the report, rising oil prices and a notable increase in immigration last year are both directly related to Dubai’s real estate market’s high demand.
“Between mid-2021 and mid-2022, housing prices increased by 10%. Over the previous four quarters, rent growth even exceeded that of home price growth. The market is still fairly valued as a result, according to the report.
Valuations At Their Peak
Between mid-2021 and mid-2022, the nominal house price growth in the 25 cities under consideration accelerated to almost 10% on average, the highest annual growth rate since 2007. In fact, all cities saw an increase in housing prices, with the exception of Stockholm, Paris, and Hong Kong. In addition, virtually all cities saw an acceleration in the growth of outstanding mortgages, and for the second year running, household debt increased significantly faster than the long-term average.
Rising Rates Exacerbate the Imbalance
Over the past ten years, home prices have steadily gotten further away from incomes and rents because of low-interest rates. According to the report, real earnings and rents have only increased by about 12 percent during this time, while prices in cities that are currently at risk of a bubble have increased by an average of 60 % in inflation-adjusted terms.
Since mid-2021, when they were at their lowest, mortgage rates have just about doubled on mean across all cities examined. The quantity of living space that is economically sustainable for a highly skilled service employee is, on average, one-third less than it was just before the pandemic due to significantly increased real estate prices.
Claudio Saputelli, stated: “Household purchasing power is declining due to inflation and asset losses resulting from the current turmoil in the financial markets, which reduces demand for additional living space.” Because the cost of borrowing in many cities is rising faster than yields on buy-to-let investments, housing is also losing appeal as an investment.
Is It Over?
According to the report, the owner-occupied real estate market is now largely supported by the still strong labor market. This also runs the risk of failing if economic conditions worsen.
The Bubble Metric (Index Scores For Housing Markets in Limited Cities)
1. Bubble Risk
- Toronto – 2.24
- Frankfurt – 2.21
- Munich – 1.80
- Hong Kong – 1.71
- Zurich – 1.81
- Tel Aviv – 1.59
- Vancouver – 1.70
- Amsterdam – 1.62
- Tokyo – 1.56
2. Overvalued
- Miami – 1.39
- Los Angeles – 1.31
- Sydney – 1.19
- Geneva – 1.14
- Madrid – 0.59
- London – 1.08
- Stockholm – 1.22
- Paris – 1.21
- Boston – 0.75
- San Francisco – 0.78
- New York – 0.57
- Singapore – 0.50
3. Fair-valued
- Dubai – 0.16
- Milan – 0.34
- Sao Paulo – 0.20
- Warsaw – 0.15
