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Munich city center: Nine annual income for a 60 square meter apartment
Photo:
Sina Schuldt / DPA
The prices for houses and apartments have risen so sharply in many metropolises that fewer and fewer people can afford property there.
And anyone who spends 6,000, 10,000 or even 14,000 euros per square meter of living space, as in Frankfurt or Munich, should ask themselves whether these high prices are really sustainable.
According to a new study by the Swiss bank UBS, the overheated real estate markets in these two German cities are at the top of the most overrated cities worldwide.
The authors of the "UBS Global Real Estate Bubble Index" write of an "acute bubble risk" that is higher there than in New York, Tokyo or Tel Aviv, for example.
No other city in the world is in such danger.
UBS defines a real estate bubble as a strong and sustained deviation of the price level from the development of income, economic growth and population migration.
For people in Munich, the news should come as little surprise.
The housing market in your city was already at the top of the ranking in 2019.
Frankfurt, however, left Hong Kong or Toronto behind within a year and is now in second place.
The authors refer to the price development on the real estate market as the reason for Frankfurt's rise.
The rents for living space have risen by almost 40 percent since 2010, and house prices have doubled within a decade.
Last year alone, real prices (after deducting general inflation) rose by eight percent.
Since a lot is being built in the upper market segment, real estate price inflation continues to heat up.
This makes "the city increasingly priceless for its citizens".
The city is benefiting from solid economic and employment growth, but the population has also grown rapidly - through births and migration.
In Munich, it is still the strong local economy and a lack of living space combined with population growth that are fueling the real estate market.
According to the report, a qualified employee from the service sector would currently have to raise around nine annual incomes to buy a 60 square meter apartment near the city center.
In order to recoup the purchase price of an apartment of the same size, it would have to be rented for 39 years - longer than in any other metropolis.
"Investors should exercise caution right now"
Maximilian Kunkel, UBS Germany
"The above-average rise in the price of residential property on the Main and the Isar has further increased this risk in the past year," says Maximilian Kunkel, chief investment strategist for UBS in Germany - and warns investors: "Especially investors who are considering making purchases in these regions of Germany for profit reasons , should exercise caution at the moment, also because current real estate prices do not yet reflect the long-term consequences of the pandemic. "
Thanks to government aid programs for the economy in the corona crisis, the real estate markets have not yet been significantly affected.
But this could change.
Falling income or increased work in the home office could, for example, weaken demand for central locations in the long term, says Tobias Vogel from UBS wealth management.
In addition: "Cities that are already heavily indebted or economically weaker will have to face the economic crisis with austerity measures, which can also have a negative impact on property prices."
There is another factor for investors: Since the purchase prices for apartments in relation to the rents are already very high in many cities, the possibilities for investment income from renting the properties are limited.
Zurich for the first time with bubble risk
As in Munich and Frankfurt, in a European comparison there is
also a bubble risk
in
Amsterdam
and
Paris
and for the first time in
Zurich
.
Zurich has experienced the strongest price increase of all Swiss economic regions in the past decade, it is said.
In
London
on the other hand, the real estate market is "only" considered to be overvalued.
According to the UBS analysts, the British capital recorded the weakest price development since 2016, but the weaker pound and lower prices could increase foreign investors.
While Europe increasingly dominates the UBS bubble index, the values in the US metropolises were comparatively stable.
In
San Francisco
, home prices even fell.
And here, according to UBS, it can already be observed that the demand for inner-city real estate is weakening.
Many people move to suburbs for price reasons, among other things, and there is also emigration to states that offer better tax conditions for companies.
Tel Aviv
in Israel, on the other hand, recorded particularly strong increases in prices, according to the report, while those in Hong Kong and Singapore remained fairly stable in the first half of the year.
UBS calculates the bubble index for 25 cities around the world every year from prices measured in terms of gross income and rents as well as other standardized and weighted indicators.
A factor analysis is used to create the index, which has four levels: Undervalued with index values from -1.5 to -0.5, fair valued with values from -0.5 to 0.5, overvalued with index values from 0.5 to 1.5 - as well as from 1.5: risk of blisters.
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