Real Estate Bubbles: These 8 Global Cities Are At Risk

If you had $1 billion to spend on safe real estate assets, where would you look to buy?

For many funds, financial institutions, and wealthy individuals, the perception is that the world’s financial centers are the places to be. After all, world-class cities like New York, London, and Hong Kong will never go out of style, and their extremely robust and high-density city centers limit the supply of quality assets to buy.

But, as Visual Capitalist's Jeff Desjardins asks, what happens when too many people pile into a “safe” asset?

According to UBS, certain cities have seen prices rise at rates that are potentially not sustainable – and eight of these financial centers are at risk of having real estate bubbles that could eventually deflate.

Global Real Estate Bubble Index

Every year, UBS publishes the Global Real Estate Bubble Index, and the most recent edition shows several key markets in bubble territory.

The bank highlights Toronto as the biggest potential bubble risk, noting that real prices have doubled over 13 years, while real rents and real income have only increased 5% and 10% respectively.

However, the largest city in Canada was certainly not the only global financial center with real estate appreciating at rapid rates in the last year.

In Munich, Toronto, Amsterdam, Sydney and Hong Kong, prices rose more than 10% in the last year alone.

Annual increases at a 10% clip would lead to the doubling of prices every seven years, something the bank says is unsustainable.

In the last year, there were three key markets where prices did not rise: London, Milan, and Singapore.

London is particularly notable, since it holds more millionaires than any other city in the world and is rated as the #1 financial center globally.

Comments

Freedumb Mon, 02/26/2018 - 02:50 Permalink

Horrifically understates NYC's bubble. I am a NYC real estate attorney and you would have to see the all cash Russian and Chinese deals to believe it.

skbull44 BlackChicken Mon, 02/26/2018 - 07:29 Permalink

I am continually 'amused' at the relentless propaganda put out by the real estate entities and government in Ontario (Canada) that the ridiculous increase in housing costs are almost entirely due to fundamentals (i.e. not enough supply, strong economics, etc.) and not the hot money flowing in from foreign buyers. While I have not any firm 'statistics' to support it (mostly because of the convenient refusal to publish or compile them), anecdotally I can attest that the overwhelming majority of buyers in my region of the Greater Toronto Area have been of 'oriental persuasion' (I'm assuming Chinese). 

Whether it is coincidental with the provincial government's implementation of a foreign buyer tax and/or central bank interest rate/monetary policies, resales of residential homes in our region have virtually come to a complete halt. Where last summer homes would barely be on the market a week or two before being snapped up, they now sit unsold for months and eventually leave the market. I've seen almost no movement these past 4-6 months. 

 

https://olduvai.ca

In reply to by BlackChicken

philipat TheSilentMajority Mon, 02/26/2018 - 04:27 Permalink

I live in Indonesia where foreigners (largely as a result of a post-colonial Xenophobia) are completely prohibited from buying landed property. And the market, even in the capital city, Jakarta, has never become over-heated. This is very much in the interests of the local people. It makes so much sense that one has to wonder why any country would allow foreigners to buy up all its housing stock to the point that the local population can no longer afford?

In reply to by TheSilentMajority

TheSilentMajority philipat Mon, 02/26/2018 - 04:41 Permalink

Singapore and thailand also have strict rules that make it illegal for foreigners to own land.

A foreigner can buy a condo in those countries, but they can never have controlling interest in the underlying land.

Its odd how western countries will allow Indonesians, Thais, and Singaporeans to buy land without reciprocal agreements.

A third of london is probably owned by Singaporeans!...but brits cannot own land in Singapore. Imagine that.

In reply to by philipat

TheSilentMajority Herodotus Mon, 02/26/2018 - 07:43 Permalink

Accor own the raffles brand, so they now manage the property, but they likely only have a leasehold on the underlying land. Singapore property is commonly offered with 50, 99, and 999 year leasehold structures.

 

In extremely rare circumstances, usually for giant corporations, the government may also grant an exception to actual land ownership rules.

99.99% of singapore land ia owned by Singapore citizens or the singapore government.

In reply to by Herodotus

Endgame Napoleon TheSilentMajority Mon, 02/26/2018 - 08:02 Permalink

The Brits can thank US politicians and US companies, in part, for opening up Asia via Nixon and then shipping the middle-class jobs over there to help beef up China’s industrial base and its military, which likely had a run-off effect on neighboring countries, helping to generate a lot of millionaires with assets to park, while the US middle class wilted, entering old age asset-less in more and more cases.

In reply to by TheSilentMajority

Singelguy TheSilentMajority Mon, 02/26/2018 - 07:17 Permalink

That may be partially true, but I think a significant number are parking cash in real estate as a safe haven from the equity and bond markets as well as an inflation hedge. In certain markets, real estate investment provides a better ROI and has significant tax advantages. Having said that, the risks of a crash far outweigh the potential returns. 

In reply to by TheSilentMajority

Panic Mode Mon, 02/26/2018 - 02:59 Permalink

I hope Canada property bubble burst into dust, can't stand a country leaded by 'people' fucking 'kind'. They will fall into their own demises and illusions..

FrankDrakman Panic Mode Mon, 02/26/2018 - 07:50 Permalink

Trudeau's a dick, of course, but let's be serious. My GF owns a 3 bedroom, 3 bath semi with a garage in mid-town Toronto. We think we might get C$1.2 million (US$900k) for it. In NYC, this home would be $10 million - condos that size are going for $4 million US. 

Canada is just way cheaper than anywhere on the list. It's relatively safe (Toronto has ~50 murders a year in a city of 2.5 million), stable government and currency, not prone to natural disasters outside of snow, etc. The rest of the world, looking for boltholes, has discovered the Great White North, and they are pushing up prices. We are still cheap compared to, say, Sydney, where the locals were almost proud that no one can afford to buy homes there. 

In reply to by Panic Mode

Barry McBear FrankDrakman Mon, 02/26/2018 - 08:43 Permalink

You been smoking too much medicinal there son.

Toronto: 

- > 50% tax rate, closer to 60% when you factor in HST (sales) and property taxes.

- Worst winters of any "world class city" outside of Moscow. It's COLD! We only have nice weather from June to Sept. May&Oct are coin flips.

- Worst traffic in all of North America, average commute time is longer than even L.A.  City planners have simply done a terrible job with this city. (Allen Rd was supposed to extend to Gardiner, Kingston Rd was supposed to be a highway meeting 401 out East. DVP/404 should be WAY bigger, but the greenies wouldn't have a any of it)

- 3rd world health care waiting time.  Need to go to the E.R.?  Bring a good book, you'll be waiting 6 hours to see a doctor.  Need to see a specialist?  Prepare to wait for months.  Couple anecdotes: Aunt had a tumor in her breast, had to wait a full month for surgery.  I needed my knee scoped for torn cartlidge, had to wait over 6 months.  You can't pay to bypass these lines.  Only option is to go to the States and pay, which I have done.

- Public transit is at the level that would adequately serve a city a quarter of this size. We literally have only 2 subway lines! (The 4 or 5 stations along Sheppard don't count... hell they've been talking about closing that mistake... also that horrific decision they made with St Clair, absolutely destroyed it to put in another idiotic street car lane).

And this list is just off the top of my head, I gotta leave for work now, going to be late with the commute.  Toronto is an absolute shithole full of delusional people, like our friend Frank here, who love to rationalize the value of their homes... btw Manhatthan has a thing called scarcity, it's surrounded by water, Toronto has open land as far as one can see in 3 directions.

In reply to by FrankDrakman

asteroids Barry McBear Mon, 02/26/2018 - 09:45 Permalink

Politicians at the city, provincial, and federal level are half-wits. Their only job it to appease their electorate, no matter what the cost, while pulling down a tax free salary and pension. Ontario is now has several generations of snow-flakes that are turning this once great province into a 3rd world shithole full of debt slaves. This ends with either the collapse of the Loonie or massive inflation.

In reply to by Barry McBear

OliverAnd Mon, 02/26/2018 - 03:00 Permalink

Trudeau has it all under control: no one will notice any bubble bursting because everyone will be high from smoking weed directly or indirectly this July.  In fact he too will be too busy parading on Church Street and vacationing on Khan's private island in the Bahamas... high of course!  

FullHedge1 OliverAnd Mon, 02/26/2018 - 04:35 Permalink

Nah. He'll be in  some foreign country wearing costumes again. Maybe wearing blush with a beret on his head enjoying some French wine and cheese before suckling Macron's dick. That will be followed by shedding tears in public over the latest tragic act of terrorism.

 

Fucking embarrassment to my nation. RIP Canada.

In reply to by OliverAnd

Yen Cross Mon, 02/26/2018 - 03:30 Permalink

 I gave My inverse trades to Miffed last night.

  Commercial backed debt is going to get pounded<

  The requirements, because of collateral in MBS, it a giant fucking land mine!

   The FATCA ,FINRA, sort of fixed the residential lending issues.

  Commercial real estate is going to be toast!

 

SwaziRed Mon, 02/26/2018 - 04:37 Permalink

What! No Russian cities in this list? I suppose that a handful of oligarchs can only 'buy' so much real estate. Nor are any rich Asians flocking there for security and a higher standard of living.

Awwwww.

silverer SwaziRed Mon, 02/26/2018 - 08:25 Permalink

But you get a fallout shelter with your deal. The government in Russia has been building them for years. If you live in Moscow, you are no more than three minutes from one. Putin cares about ordinary Russians. He realizes that he can't be a billionaire and be at the top if there is no bottom. Bottoms matter.

In reply to by SwaziRed

tribune Mon, 02/26/2018 - 05:22 Permalink

 in russian smersh means death to spies. what logo do we have for the death of the fiat money system, the greatest source of wealth inequality know to man