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According to a new survey conducted by a leading Swiss multinational investment bank, Dubai’s property sector is the only market with the lowest price bubble risk among 25 leading global cities.
Dubai’s real estate sector is an undervalued market and also the only one classified in a lower risk category than last year among the 25 global cities, reviewed in the yearly study by UBS Global Wealth Management’s Chief Investment Office, the UBS Global Real Estate Bubble Index 2021.
'Prices in Dubai were still falling, however improved affordability, easier mortgage regulations, higher oil prices, and an economic rebound now seem to have finally kick-started a recovery,' the UBS study notes.
The survey points out that during the last year the bubble risk has increased on average, which has the potential severity of a price correction in many of the cities tracked by the index.
The highest risk levels on housing markets are seen in Frankfurt, Toronto, and Hong Kong. However, housing market recovery pace is likely to accelerate. Average house prices in the cities studied in the survey have increased in the last four quarters by six percent in inflation-adjusted terms, which is the highest result since 2014.
Munich and Zurich also exhibit elevated risk; both Vancouver and Stockholm have reentered the bubble risk zone. The list of cities with bubble risk is concluded by Amsterdam and Paris.
All US cities analyzed - Miami (replacing Chicago in the index this year), Los Angeles, San Francisco, Boston, and New York are overvalued markets. There are also high housing market imbalances in Tokyo, Sydney, Geneva, London, Moscow, Tel Aviv, and Singapore, while the markets of Madrid, Milan and Warsaw remain fairly valued. So Dubai is the only undervalued market and the only one classified in a lower category than last year.
From mid-2020 to mid-2021, house prices increased by six percent in inflation-adjusted terms. All the cities, except four – Milan, Paris, New York and San Francisco – witnessed their house prices grow. And double-digit growth was even registered in five cities: Moscow; Stockholm, Sydney, Tokyo and Vancouver. This price rally was caused by a combination of special circumstances.
The low user cost of owning property compared with renting at the moment, along with the expectation of ever-growing house prices, makes homeownership seemingly attractive for households, regardless of price levels and leverage. This rationale may keep markets running for the time being. But households have to borrow increasingly large amounts of money to keep up with higher property prices.
Actually, the study indicates that the volume of mortgages has increased outstandingly almost everywhere in the last quarters, as well as debt-to-income ratios.