Zurich ranked as one of the most overpriced housing markets in the world
The city of Zurich has been identified by UBS’s Global Real Estate Bubble Index as the fifth most likely city in the world to experience a housing bubble in 2021. A combination of low-interest rates and high demand for Swiss housing has increased prices significantly over the past three years, adding to fears of the "bubble bursting."
Zurich's housing market 50 percent more valuable than 10 years ago
The Swiss bank chose Zurich due to the significant rise in house prices over the past 10 years. Today, housing is 50 percent more expensive than it was in 2010. As well as increasing prices, the number of mortgages has “accelerated” in the last few years, many with a higher risk of default.
Although buying a house in Switzerland remains rare compared with other nations, the report found that a lack of new housing had begun to “overheat” the market. Of primary concern for UBS was that it found investors had become “entrenched” in the idea of permanently rising prices, one of the factors which caused the global housing bubble in 2008.
In a word of caution, UBS emphasised that “a broad market correction is not in the offing in the short run,” but that low affordability in the city will start to hit house prices in future. They explained that Zurich’s status as a hub for entrepreneurs and international companies had a significant impact on house prices, with the number of expats looking for a house outpacing supply.
House prices continue to rise in suburbs
Across the world, the report identified several cities where the housing market had overheated. Frankfurt topped the list, with the cost of housing rising by 10 percent every year since 2016. Unique to 2020 - 2021, the report discovered that higher house prices had moved from the city-scape to suburbia.
During the pandemic, “city life became less attractive,” according to UBS, which led to demand shifting from city centres to suburbs for the first time since 1990. COVID-19 changed the dynamic of city growth, with the report noting that city-centre offices, entertainment and restaurants were abandoned for much of the year.
Concluding their findings, the report urged caution in the market, as housing market fundamentals had become “shaky.” UBS predicted a “long, lean spell for cities’ housing markets”, but emphasised that it remains unlikely that the market will slow down any time soon.
UBS Global Real Estate Bubble Index in 2021
The UBS Global Real Estate Bubble Index is a study that analyses the house prices of 25 cities around the world, to predict which markets are “substantially and sustainedly mispriced.” The report combines several different factors, such as the ratio of house prices to salaries, rental costs, taxes costs and fees for housing, and how the cities’ prices compare with the countries they're in.
The study found that global house prices grew by 6 percent from mid-2020 to mid-2021. House prices grew in 21 of the 24 cities analysed, with Milan, Paris, New York and San Francisco being the exceptions.
According to the 2021 Global Real Estate Bubble Index, the top 9 most overpriced cities in the world are:
- 1. Frankfurt (bubble risk index 2,16)
- 2. Toronto (2,02)
- 3. Hong Kong (1,90)
- 4. Munich (1,84)
- 5. Zurich (1,83)
- 6. Vancouver (1,66)
- 7. Stockholm (1,62)
- 8. Paris (1,59)
- 9. Amsterdam (1,58)
For the full report, check out the UBS website.