Toronto takes second place in global bubble risk rankings

by Steve Randall on 01 Oct 2019

A global real estate study has ranked Toronto and Vancouver at risk of a housing bubble.

The Global Real Estate Bubble Index from asset manager UBS analyzes residential property prices in 24 major cities around the world and reports the risk of a bubble year-over-year.

The 2019 index is led by Munich, but Toronto is close behind along with Hong Kong, Amsterdam, Frankfurt, Vancouver, and Paris.

Vancouver and Hong Kong are the only ones at risk that have seen prices decline over the past four quarters. In fact, while  inflation-adjusted price increases have practically come to a standstill in most of the analyzed markets, there were corrections of over 5% over the previous year in Sydney, Vancouver and Dubai.

Tighter lending conditions
And while interest rates are low in many of the markets included, there is an issue that those that are of concern share with the two Canadian markets included, according to Claudio Saputelli, Head of Real Estate at UBS Global Wealth Management.

"The worldwide collapse in interest rates will not come to the housing markets' rescue,” he said. “Mortgage interest rates in many cities aren't the major challenge for house buyers anymore. Many households simply lack the funds required to meet the banks' financing criteria, which we believe poses one of the biggest risks to property values in urban centers."

Matthias Holzhey, lead author of the study and Head of Swiss Real Estate Investments at UBS Global Wealth Management, says that investors should be cautious about investing in bubble-risk markets.

“Regulatory measures to curb further appreciation have already triggered market corrections in some of the most overheated cities. Real prices in all four top-ranking cities in the 2016 edition of the UBS Global Real Estate Bubble Index have fallen, for instance. On average they are down by 10% from their respective peaks and we don't see this trend reversing." He said.

Don’t take growth for granted
Real price appreciation in housing markets cannot be taken for granted the report warns.

The sure road to wealth accumulation is being disrupted by a shift of labour to the suburbs and, although underlying factors favouring city properties, including urbanization, the digital revolution and artificial supply constraints, still hold good, there are no guarantees of growth.

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