The global cities where property bubbles are about to pop
The downturn in Sydney’s property market, which began in 2017, has seen the city side-step property bubble territory.
However, property investors in some European cities should beware, with Munich topping the list as the city most at risk of a real estate bubble.
According to UBS’ Global Real Estate Bubble Risk Index 2019, Munich, Amsterdam, Paris and Frankfurt are four of the top seven global cities where property is consistently overvalued.
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A ‘bubble’ is defined as a “substantial and sustained mispricing of an asset, the existence of which cannot be proven unless it bursts,” according to UBS.
Property bubble risk is second-highest in Toronto, followed by Hong Kong, with Vancouver rounding out the top seven.
In 2017, Sydney ranked as one of the cities at greatest risk of a property bubble, but this risk has fallen as property prices dropped.
“They corrected by a double-digit number within a year, lowering the index score significantly. Lower foreign buying activity and tighter mortgage lending continued to mute overall demand,” the UBS report said.
Here’s the full global list of cities most at risk of a property bubble:
Economy could be at risk if bubble risk returns
The national property downturn has bottomed out and investors are coming out of hibernation as Sydney and Melbourne prices begin to rebound.
While we’ve moved out of property bubble territory, property prices could be pushed back up if investors are spurred on by the RBA’s latest cut.
And as wages stagnate and the unemployment rate rising, Aussies who have lost their jobs could leave them struggling to pay off their mortgages.
And the rate of mortgage arrears at its highest since the GFC: the number of Australians failing to make their mortgage repayments are at levels we haven’t seen since 2014, according to RBA head of financial stability Jonathan Kearns in a speech in June.
If Aussies aren’t able to pay off their debts, consumer spending would slow even further and the economy would take a turn for the worse.
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