UBS Global Real Estate Bubble Index 2022 Report: Hong Kong Facing Bubble Risk, Singapore Overvalued
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UBS Global Real Estate Bubble Index 2022 Report: Hong Kong Facing Bubble Risk, Singapore Overvalued 15th October 2022 | Hong Kong
UBS has released the UBS Global Real Estate Bubble Index 2022 Report, providing key data & insights into the top global cities real estate valuation & bubble-risk, price change in 2021/2022 & in the last 10 years, no. of years required to buy near-city-centre apartments, and no. of rental years to fully pay for near-city-centre apartments. Of the 25 cities, 9 cities face bubble risk and 10 cities are overvalued. Top financial centres Zurich, Hong Kong & Tokyo are facing bubble risk, and London, San Francisco, New York and Singapore are overvalued, and only Dubai is fairly valued. The top 9 cities facing bubble risks are Toronto, Frankfurt, Zurich, Munich, Hong Kong, Vancouver, Amsterdam, Tel Aviv & Tokyo. In Hong Hong, it takes 24 years for a skilled worker to buy a near-city center apartment, in Singapore it takes 10 years. In comparison, it takes 12 years in London, 8 years in Zurich, 8 years in New York, 6 years in Francisco, and 6 years in Dubai. If relying on rental to fully pay for the near-city center apartment, it takes 44 years in Hong Kong, and 28 years in Singapore. In comparison, it takes 40 years of rental in Geneva, 30 years in Tokyo, 27 years in London, 21 years in San Francisco, 20 years in New York and 16 years in Dubai. See below for key highlights & summary:
” In Hong Hong, it takes 24 years for a skilled worker to buy a near-city center apartment, in Singapore it takes 10 years “
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Toronto, Canada Key Findings: - Top 25 cities: 9 cities face bubble risk, 10 cities are overvalued.
- 9 Cities facing bubble risks: Toronto, Frankfurt, Zurich, Munich, Hong Kong, Vancouver, Amsterdam, Tel Aviv & Tokyo
- Top Financial Centres Bubble Risk: Zurich, Hong Kong & Tokyo
- Top Financial Centres Overvalued: London, San Francisco, New York & Singapore
- Top Financial Centres Fairly-valued: Dubai
- Years to buy near-city center apartment in HK & SG: Hong Kong 24 years, Singapore 10 years.
- Years to buy near-city center apartment: 12 years in London, 8 years in Zurich, 8 years in New York, 6 years in Francisco, 6 years in Dubai.
- Rental to fully pay for near-city center apartment in HK & SG: 44 years in Hong Kong, 28 years in Singapore.
- Rental to fully pay for the near-city center apartment: 40 years in Geneva, 30 years in Tokyo, 27 years in London, 21 years in San Francisco, 20 years in New York, 16 years in Dubai.
- Strong house price growth – Nominal house price growth in the cities analyzed accelerated to 10% from mid-2021 to mid-2022
- Affordability – Since last year, mortgage rates have almost doubled on average across the cities analyzed.
- Imbalances are sky-high in both analyzed Canadian cities, with Toronto topping the index. Valuations in Frankfurt, Zurich, Munich, and Amsterdam also show elevated risks in Europe. There is no bubble risk in the US cities.
- Household leverage on the rise
- People have returned to the cities. Strong household formation and unaf- fordable owner-occupied housing drove demand for rental units.
- Higher interest rates, inflation, turmoil in the financial markets, and deteriorating economic conditions are putting the housing boom under pressure.
1) Top 25 Cities Real Estate Valuation: Bubble Risk, Overvalued, Fairly Valued Cities Index Valuation 1 Toronto 2.24 Bubble Risk 2 Frankfurt 2.21 Bubble Risk 3 Zurich 1.81 Bubble Risk 4 Munich 1.80 Bubble Risk 5 Hong Kong 1.71 Bubble Risk 6 Vancouver 1.70 Bubble Risk 7 Amsterdam 1.62 Bubble Risk 8 Tel Aviv 1.59 Bubble Risk 9 Tokyo 1.56 Bubble Risk 10 Miami 1.39 Over-valued 11 Los Angeles 1.31 Over-valued 12 Stockholm 1.22 Over-valued 13 Paris 1.21 Over-valued 14 Sydney 1.19 Over-valued 15 Geneva 1.14 Over-valued 16 London 1.08 Over-valued 17 San Francisco 0.78 Over-valued 18 Boston 0.75 Over-valued 19 Madrid 0.59 Over-valued 20 New York 0.57 Over-valued 21 Singapore 0.50 Over-valued 22 Milan 0.34 Fair-value 23 Sao Paulo 0.20 Fair-value 24 Dubai 0.16 Fair-value 25 Warsaw 0.15 Fair-value
Top financial centres Zurich, Hong Kong & Tokyo are facing bubble risk, and London, San Francisco, New York and Singapore are overvalued, and only Dubai is fairly valued. The top 9 cities facing bubble risks are Toronto, Frankfurt, Zurich, Munich, Hong Kong, Vancouver, Amsterdam, Tel Aviv & Tokyo.
2) Top 25 Cities Real Estate Valuation: Price Growth 2021/2022, 10 Years Cities 2021/2022 10 Years (Annual) 1 Toronto 8.60% 7.10% 2 Frankfurt -2.40% 6.50% 3 Zurich 4.60% 3.70% 4 Munich 2.90% 6.40% 5 Hong Kong -4.30% 2.40% 6 Vancouver 6.40% 5.60% 7 Amsterdam 7.50% 5.90% 8 Tel Aviv 12.90% 5.40% 9 Tokyo 2.90% 5.00% 10 Miami 16.80% 8.10% 11 Los Angeles 10.90% 6.20% 12 Stockholm -7.80% 4.60% 13 Paris -5.70% 1.10% 14 Sydney 0.10% 5.50% 15 Geneva 1.20% 1.60% 16 London -5.00% 2.70% 17 San Francisco 8.40% 5.10% 18 Boston 7.80% 4.00% 19 Madrid 6.30% 2.20% 20 New York 0.40% 1.80% 21 Singapore 4.50% 0.90% 22 Milan -0.80% -1.40% 23 Sao Paulo -7.00% -1.60% 24 Dubai 2.50% 0.00% 25 Warsaw -1.90% 2.20%
3) No. of Years to Buy Near-City Center Apartment* Cities No. of Years 1 Hong Kong 24 Years 2 Paris 15 Years 3 Tokyo 14 Years 4 London 12 Years 5 Tel Aviv 11 Years 6 Munich 10 Years 7 Singapore 10 Years 8 Sao Paulo 9 Years 9 New York 8 Years 10 Amsterdam 8 Years 11 Frankfurt 8 Years 12 Sydney 8 Years 13 Geneva 8 Years 14 Zurich 8 Years 15 Vancouver 8 Years 16 Milan 7 Years 17 Warsaw 7 Years 18 Los Angeles 7 Years 19 Stockholm 7 Years 20 Toronto 7 Years 21 Boston 6 Years 22 San Francisco 6 Years 23 Dubai 6 Years 24 Madrid 5 Years 25 Miami 5 Years
In Hong Hong, it takes 24 years for a skilled worker to buy a near-city center apartment, in Singapore it takes 10 years. In comparison, it takes 12 years in London, 8 years in Zurich, 8 years in New York, 6 years in Francisco, and 6 years in Dubai.
*Income of Skilled Worker to Buy 60 sqm (650 sqft) Near-City Center Apartment
4) No. of Rental Years to Fully Pay Near-City Center Apartment* Cities No. of Rental Years 1 Munich 44 Years 2 Hong Kong 44 Years 3 Tel Aviv 44 Years 4 Frankfurt 42 Years 5 Geneva 40 Years 6 Zurich 40 Years 7 Stockholm 33 Years 8 Paris 33 Years 9 Sydney 32 Years 10 Amsterdam 31 Years 11 Tokyo 30 Years 12 Singapore 28 Years 13 Toronto 27 Years 14 Milan 27 Years 15 London 27 Years 16 Vancouver 26 Years 17 Madrid 22 Years 18 Boston 22 Years 19 Warsaw 21 Years 20 San Francisco 21 Years 21 Los Angeles 21 Years 22 Sao Paulo 21 Years 23 New York 20 Years 24 Dubai 16 Years 25 Miami 14 Years
If relying on rental to fully pay for the near-city center apartment, it takes 44 years in Hong Kong, and 28 years in Singapore. In comparison, it takes 40 years of rental in Geneva, 30 years in Tokyo, 27 years in London, 21 years in San Francisco, 20 years in New York and 16 years in Dubai.
*Income of Skilled Worker to Buy 60 sqm (650 sqft) Near-City Center Apartment
This is a UBS Global Real Estate Bubble Index 2022 Report released by UBS, providing key data & insights to top global cities property valuation & bubble-risk, price change in 2021/2022 & the last 10 years, no. of years required to buy near-city-centre apartments, and no. of rental years to fully pay for near-city-centre apartments.
UBS Global Real Estate Bubble Index – Methodology & data
The UBS Global Real Estate Bubble Index traces the fundamental valuation of housing markets and the valuation of cities in relation both to their country and to economic distortions (lending and building booms). Tracking current values, the index uses the following risk-based classifications: depressed (score below –1.5), undervalued (–1.5 to –0.5), fair-valued (–0.5 to 0.5), overvalued (0.5 to 1.5), and bubble risk (above 1.5). This classification is aligned with historical bubble episodes.
The index score is a weighted average of the following five standardized city sub-indices: price-to-income and price-to-rent (fundamental valuation), change in mortgage-to-GDP ratio and change in construction-to-GDP ratio (economic distortion), and relative price-city-to- country indicator. The price-city-to-country indicator in Singapore, Hong Kong, and Dubai is replaced by an inflation-adjusted price index. The approach cannot fully account for the complexity of the bubble phenomenon. We cannot predict if or when a correction will hap- pen. Hence, “bubble risk” refers to the prevalence of a high risk of a large price correction.
The sub-indices are constructed from specific city-level data, except for mortgage-to-GDP and construction-to-GDP ratios, which are calculated on the country level. In most cases, publicly available data is used. But in a few cases, the data consists of, or is supplemented by, additional sources, including the results of the UBS Prices and Earnings survey. The index length varies by city depending on data avail- ability. The longest data series starts in 1980, the shortest in 2009. For time series shorter than 30 years, the coefficient of variation of an equivalent indicator on the country level is used as a floor value to calculate the volatility of the city-level indicator (subject to availability). We also took into account the availability of data when deciding which cities to include in the index. We considered the importance of the city for global financial markets and residential real estate investments. Please see the description of data sources on page 23.
The weights of the sub-indices are determined using factor analysis, as recommended by the OECD Handbook on Constructing Composite Indicators (2008). Factor analysis weights the sub-indices to capture as much of the common underlying bubble risk information as possible. As the drivers of bubbles vary across cities, this method results in city-specific weights on sub- indices. To prevent overweighting country level variables and to increase the comparability of cities, the deviation from the average weight across all cities is limited. So fixed weights that approximate the average factor analysis weight of single indices across the cities complement the calculation. The final weights are subject to minor changes when new data enters the calculation or past data is revised.
Benchmarking – The analysis is complemented by a city bench-marking using current price-to-income (PI) and price-to-rent (PR) ratios. The PI ratio indicates how many years a skilled service worker needs to work to be able to buy a 60 square meter (650 square foot) flat near the city center. The PR ratio signals how expensive owner-occupied homes are relative to rental apartments. The higher the ratios, the more expensive buying becomes. Earnings data is taken primarily from the UBS Prices and Earnings survey and from official statistical sources. Real estate prices and rents vary widely near the city center. Our estimates are cross-checked, validated using differ- ent sources, and are updated and challenged on an annual basis. However, we also specify an uncertainty range due to the differing quality of data sources.
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