The Global Real Estate Bubble in 2018

Ten years after the 2008 financial crisis, investor confidence is booming and global markets are bullish. Housing the world over has made an unprecedented surge back into sky-high valuations and real estate has re-solidified its stance as a lucrative venture.

But analysts and investors are beginning to be rife with concerns, edging an important question: Just how high is too high?

Housing prices in major cities have increased 35 percent in the last five years alone—Hong Kong is the worst offender. According to the UBS, you’d have to work an average of 22 years in Hong Kong to afford a 60m2 flat, compared to six years in Milan. Ten years ago it was possible to secure an apartment in the Asian metropolis in nearly half that timespan.

What’s happening is an expanding real estate bubble—a phenomenon leading to heavily mispriced property assets in major cities across the globe. The UBS refers to this circumstance as a common market occurrence—a price pendulum that swings from low to high, inflating and deflating regularly at a city and sometimes global scale. But how long the bubble sustains and how large it gets can be defining factors of an unwelcome matter: when the bubble bursts.

The Real Estate Bubble by City

Below is a graph from UBS denoting global cities in or approaching the real estate bubble. Hong Kong, Munich, Toronto, Vancouver, Amsterdam, and London all surpass risk categories, and San Francisco, which is labeled “overvalued,” bears a weighty median price for single-family homes of $1.7 million. Sydney is now just under the bubble risk category after spending a few years in the red.


The 2019 Bubble and Beyond

As per UBS, signs of a depreciating market include growing interest rates and political instability, which makes it increasingly difficult for median-income individuals to live in these urban sprawls. Indications of a weakening global bubble have surfaced, as over half of all cities in 2017’s listed risk cities showed a notable real estate market decline. And London, Stockholm, and Sydney are the lead barometers.

Sydney, which hit the bubble risk territory in 2015, has since seen housing prices deflate due to lending restrictions and large tax rates. But according to UBS, “Despite its index score plunging, the city remains highly overvalued,"—its risk indexing is just below that of San Francisco.

Recently, Oxford Economics made warnings of Australia’s housing to be one of the riskiest markets in the world, with increasing notions of further falling home valuations posing an extensive economic threat.

"How appealing returns will be in the next few years is questionable," said Claudio Saputelli, head of real estate at UBS Global Wealth Management's Chief Investment Office. "We recommend caution when buying residential real estate in most of the biggest developed market cities."


by Morgan Sliff