UBS: Risk of Overheating in the Frankfurt Real Estate Market Is High
- Posted on
- Editorial team
Munich and Frankfurt are at the forefront worldwide when it comes to the risk of the real estate market overheating, according to the major bank UBS. The two German cities showed clear signs of overheating among 25 metropolises examined, said the Swiss money house. “No other city in the world is as exposed to the risk of a real estate bubble as Munich and Frankfurt,” said Maximilian Kunkel, UBS chief investment strategist in Germany.
Accelerated Price Increases in Europe
The euro area is the region with the most overheated housing markets. Munich and Frankfurt show the strongest warning signals. In its “Global Real Estate Bubble Index 2020” for Munich and Frankfurt, the bank calculated key figures of 2.35 and 2.26 points. At 1.5 points or more, there is a risk of a real estate bubble in the market. This is immediately followed by Paris and Amsterdam, for which, like the two German cities, there is a risk of a bubble. Zurich, Toronto, and Hong Kong also show strong imbalances. In contrast to last year, the housing market in Vancouver is in the category of overrated cities. This also applies to London, San Francisco, Los Angeles, and, to a lesser extent, New York. Boston, Singapore and Dubai are still rated fairly. The same applies to Warsaw, which was included in the study for the first time. Chicago is the only market that remains undervalued.
Annual inflation-adjusted rates of price increase have accelerated on average over the past four quarters. In many European cities, prices have risen by more than 5 percent, especially in Munich, Frankfurt, and Warsaw.
The rate of price increases in the Asian and American cities, with the exception of Sydney, remain in the low to mid-single-digit range. Madrid, San Francisco, Dubai, and Hong Kong are the only cities where prices have dropped. The last time there were fewer cities with negative price growth was in 2006.
Global Real Estate Bubble Index 2020
Comment on the Frankfurt Numbers
Our editor Daniel Kieckhefer comments on the study presented by UBS: Whether one can actually speak of an impending real estate bubble in Frankfurt remains to be seen.
Many factors influence the market in every single city, and not all real estate markets develop in a way which make them comparable. For example, comparatively expensive high-rise apartments in residential towers have only been sold increasingly in Frankfurt for a few years. This completely new market is expensive and is aimed in particular at real estate investors who often do not even live in Germany. Such expensively sold apartments have a huge impact on the official property sales statistics, but probably less on the regular real estate market: many of these expensive high-rise apartments are often vacant, intentionally or unintentionally. Because of their prices they do not compete for the classic real estate seeker looking for an affordable home.
In addition, the 30 percent rule in Frankfurt has only recently started to take effect, which in turn ensures that privately financed apartments cross-finance the costs of subsidized apartments. This also results in politically desired increases in real estate sales prices on the privately financed housing market.
Without this special market for residential towers and the 30 percent rule, the statistics would certainly not look so gloomy. In addition, the Frankfurt real estate market was undervalued for a long time by international comparison and is still so for many investors today. In this respect, the real estate data used for Frankfurt needs to be reassessed. If there is no reassessment, Frankfurt will continue to appear wrongly at the top of the statistics. Because the trend towards extremely high-priced apartments in residential towers is picking up speed here, with purchase prices on the upper floors in some cases exceeding 25,000 euros per square meter.
