Risk of a real estate bubble remains high in Zurich and Geneva
Published: Tuesday, Sep 24th 2024, 10:30
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In Zurich and Geneva, the risk of a bubble on the housing market remains high in an international comparison, even if it has weakened recently. In the Global Real Estate Bubble Index 2024 compiled by UBS, Zurich is now ranked third, having topped the list last year.
Overall, the risk of real estate bubbles has fallen on average for the second year in a row, the major bank noted. In Zurich, the bubble risk value for residential real estate even fell significantly compared to the previous year to 1.51 after 1.71 points a year ago. Only Miami (1.79 points) and Tokyo (1.67) have an even higher bubble risk.
There is currently an increased risk in Los Angeles (1.17 points), Toronto (1.03) and Geneva (1.00), while the UBS experts consider the risk to be moderate in Amsterdam (0.98), Sydney and Boston (both 0.78). The global cities of Paris (0.35), New York (0.37) and London (0.41) are at a comparatively low level in the index.
Falling real estate prices reduce risk
For the study, UBS analyzed residential property prices in 25 major cities. The basic rule is: the higher the prices, the greater the risk of a real estate bubble. Prices have recently fallen overall. According to UBS, they are currently around 15 percent below the mid-2022 level on average, adjusted for inflation.
The strongest corrections in real estate prices were seen in cities such as Munich, Hong Kong and Paris, which had a very high bubble risk in recent years. However, sharp price declines were also seen in Vancouver, Toronto and Amsterdam, according to the report.
There were only limited signs of easing on the part of owner-occupied homes, where price growth has been muted in recent quarters. While the corrections in Paris and Hong Kong have continued, prices in Dubai and Miami have risen further. And in Zurich, too, the purchase of owner-occupied residential property cost almost a quarter more than five years ago.
Housing shortage as a price stabilizer
In many urban housing markets, price pressure is limited, UBS real estate expert Matthias Holzhey stated in a telephone conference. The main reason for this is the increasing housing shortage in most cities, and Zurich is also heavily affected by this.
This effect is likely to continue, as the population in cities is growing and at the same time less living space is being created in urban areas. Rising construction costs, a lack of building land and a decline in building permits are leading to a further shortage on the housing market.
According to Holzhey, it remains to be seen whether there will be another real estate boom and thus a growing bubble risk. A decisive factor will be how well the economy develops in the coming quarters and how quickly the monetary authorities continue to tighten interest rates.
The purchase of residential space generally increases in an environment of falling interest rates, as credit financing becomes more affordable. After the European Central Bank (ECB) and the US Federal Reserve, the Swiss National Bank (SNB) could also cut interest rates further next Thursday, giving the real estate market a boost.
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