Named cities with the risk of bubbles in the real estate market

According to a report from UBS, on average over five years the value of real estate in large financial centers increased by 35%. Somewhere growth was even more pronounced: in Amsterdam, housing only in the last three years has increased in price by 45%.

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The markets of some cities are clearly overheated, which forces the authorities to interfere and tighten the regulation, writes Sravni.ru

Investors vs locals

Investors have benefited from such price increases, but the flip side of the coin is that fewer and fewer households can afford to buy their own housing, analysts of the bank recognize: the median ratio of real estate price to income in 20 cities increased from 5,5 in 2008 to 7,5 ( in 50, it is lower in% of cases, and higher in others. The purchase of an 60-meter apartment exceeds the budget of the majority of highly skilled employees in the services sector with an average annual salary. For example, in Hong Kong, in order to acquire housing of such a footage with an average salary, you will have to work 22 of the year. Even 10 years ago, this figure was 12 years.

As a result, foreign investors are pushing out resident buyers from the market. This, in turn, generates a response from the regulators. For example, September 30, British Prime Minister Theresa May, 2018 announced on the possibility of introducing a higher stamp duty for foreigners in order to curb price increases - a tax on the purchase of real estate can be up to 3%. London in the UBS rating on the 6 place is in the “red zone” (that is, there is a risk of a real estate bubble), although in the last two years, inflation-adjusted prices have decreased. The intervention of regulators at the peak of the bubble can lead to excessive price correction, warn in UBS. However, political risks are relevant for investors not only in the British capital: the same applies, for example, to Hong Kong. And the stricter depreciation regulation in Stockholm that came into force has already led there to a correction in real estate prices.

On average, over the past four quarters, real estate prices adjusted for inflation rose by 3,5%, but last year the boom in key cities began to decline: inflation-adjusted prices fell in almost half of the cities that UBS includes in its rating. Prices and risks of bubbles in the Eurozone countries increased, amid rising incomes, low loan rates and bullish market expectations, as well as Canada and Hong Kong.

At the same time, unlike the boom in the 1980 real estate market and the 2008 crisis of the year, UBS analysts do not observe a simultaneous explosive growth in lending and construction, so the risks of "contaminating" some markets from others if there is a sharp correction somewhere prices are considered as relatively low.

How is the index calculated

Buying housing in financial centers is becoming increasingly difficult. In Hong Kong, even those whose income is twice the average income of a highly skilled service sector worker can hardly afford an 60-meter apartment. Since 2008, real estate prices in the city have doubled, while rental prices have increased by 15%, and revenues in real terms (that is, adjusted for inflation) have not changed at all. This development triggered a response from the authorities: the government recently announced the introduction of a tax on vacant space in already completed facilities in order to encourage developers to sell apartments faster and thus increase the supply on the market. Further strengthening of regulation poses a threat to the overheated market, according to UBS.

Difficulties with the purchase of real estate experienced residents of London, Paris, Singapore, New York and Tokyo.

The ratio of real estate prices and income is also estimated by Numbeo, which regularly monitors the cost of living in more than 300 cities. The Numbeo index is calculated as the ratio of the median household income and the price of an apartment of area 90 square. m (expressed in years of income). Numbeo monitoring results are slightly different from those published by UBS. Hong Kong and London also occupy the first and second lines on this indicator, if we take into account only cities from the UBS rating, - for them the index is 47 and 21, respectively (2 and 20 places). Singapore turned out to be slightly higher than Paris - 20 versus 18 years (or 22 and 30 places). The worst situation with this indicator is in the capital of Venezuela, Caracas - 153 of the year.

UBS also estimates how many years it is necessary to rent an acquired apartment in different cities in order to "recapture" its cost. The highest rates are in Zurich and Paris - 36 years. The second line is shared by Singapore, Munich and Hong Kong - 35 years. The quickest possible way is to recoup investments in real estate in Chicago (12 years), Boston (16 years) and Los Angeles (17 years).

For half of the cities in the ranking, this figure exceeds 30 years. Such high values ​​indicate that real estate prices are largely dependent on low interest rates, noted in UBS, and if rates rise, there will be a sharp adjustment in prices. This has already happened on the Sydney market, according to a review.

The peculiarities of regulation of the rental market and the expectations of rising prices also have an effect: investors expect that insufficiently high rental rates will be compensated in the future by an increase in the price of the asset. Accordingly, if expectations are not realized, then in these markets property owners will face losses.

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