Cities in Europe may be in for property price trouble, according to the latest UBS Global Real Estate Bubble Index 2019, which found among others that Paris and Frankfurt have entered the risk zone for the first time this year.
Assessing residential property prices in 24 major cities worldwide, the index identified a “bubble risk” – or significant overvaluation of housing markets – in half of all evaluated cities.
According to the annual study, European cities face the greatest risk of a property price bubble with Munich being the most overvalued housing market in the world.
Low interest rates, the study found, have driven index scores up in all eurozone cities as demonstrated by the Paris and Frankfurt risks. The housing market in Madrid and Milan appears to be recovering.
Besides Frankfurt and Paris, Amsterdam is also among the seven cities seen to be at bubble risk, including Toronto, Vancouver and Hong Kong outside Europe.
London’s property market has cooled down moving the city out of bubble risk territory for the first time in four years.
“On a global level, economic uncertainty is outweighing the effect of falling interest rates on urban housing demand. However, in parts of the eurozone, low rates have still helped to push real estate valuations into bubble risk territory,” said Mark Haefele, chief Investment officer at UBS Global Wealth Management.
Property markets in Singapore, Boston and Milan appear to be fairly valued, but undervalued in Chicago.
Matthias Holzhey, head of Swiss Real Estate Investments at UBS Global Wealth Management and one of the study’s lead authors, advises investors to remain cautious when considering housing markets in bubble risk territory.