Where in the world is the danger of creating property bubbles?

The rise in inflation and interest rates around the world over the past two years has led to a sharp decline in imbalances in the real estate markets of global financial centers, according to the UBS Global Real Estate Bubble Index 2023. Only two cities - Zurich and Tokyo - remain in the market bubble risk category this year. Portugal was not included in the study, but several national players rule out this scenario for the country, as the limited supply of housing still does not meet current demand. Swiss bank UBS analyzed residential real estate prices in 25 major cities around the world. From mid-2022 to mid-2023, real house prices in the cities fell by an average of 5% - and are likely to continue to fall in price. According''Swiss bank, the sharp decline in imbalances is due not only to falling house prices, but also to falling incomes (due to rising inflation) and rising rents.

The decline in house prices worldwide.

Low financing costs have been the "lifeblood" of global real estate markets over the past decade, "driving house prices to record highs," according to a UBS study. However, the abrupt end to a period of low (and even negative) interest rates has "undermined the house of cards". On average across all cities, last year, inflation-adjusted home prices fell most sharply since the 2008 global financial crisis. Cities that have been classified at least once in the past three years in the zone''market bubble risk, showed an even stronger decline in average prices. However, the impact of higher interest rates varies widely from city to city, with the price correction also dependent on several other factors.

"Compared to mid-2022, prices are actually 5% lower now. On average, cities have lost most of the real price gains achieved during the pandemic and are now approaching mid-2020 levels," commented Claudio Saputelli, head of real estate at UBS Global Wealth Management.

Risk in Zurich and Tokyo

Housing prices in Zurich continue to rise in 2023, albeit at a slower pace than in previous years. Buyers of residential real estate are now paying 40% more than''ten years ago. This value is well above the national average and is stronger than rental growth, which has been nearly 12% since 2013. The ratio between purchase and rental prices remains unbalanced, especially given the elevated interest rates. "The market remains at risk of a market bubble," the bank said.

The imbalances in Tokyo's real estate market have continued to grow, turning the city from an undervalued to a market bubble risk region over the past 20 years unlike the rest of the country. Real estate prices have continued to rise for nearly two decades, detached from the rest of the country, supported by attractive financing conditions and population growth. While income growth has not''has been able to keep pace with rising prices and mortgage rates - which have risen moderately - in recent quarters, the momentum in nominal home prices has not weakened.

Europe, Asia and the Americas: standout cities

Hong Kong has been at constant risk of a market bubble since the first edition of this study. "After falling 7% from mid-2022 to mid-2023, inflation-adjusted house prices in Hong Kong have returned to levels last seen in 2017. Overall, we now see the city in a revaluation zone," the study said.

In Frankfurt and Toronto, the two highest-risk cities in last year's edition, real prices have fallen 15 percent over the past four quarters. High market valuations and relatively''Short mortgage terms have also put strong pressure on prices in Stockholm and, to a lesser extent, in Sydney, London and Vancouver. In contrast, in Madrid, New York and São Paulo - cities with moderate risk assessments to date - real house prices have continued to rise moderately.

Real house prices in the London market have been falling since Brexit in 2016. Despite a structural shortage of supply, prices remain below the national average. In the absence of strong international demand, house prices continue to come under pressure as local affordability is at its lowest level since 2007 due to high interest rates.

In Amsterdam, prices fell by 14%, the worst annual decline since the 1980s. The deterioration''financial conditions, inflation, reduced household purchasing power and regulatory changes have simultaneously impacted demand.

Home prices in Miami continue to rise faster than the national average. Price levels have more than doubled in the last 10 years. The city is a major beneficiary of the growing attractiveness of Sun Belt cities in the U.S.

"Manhattan's U.S. real estate market has largely recovered from the pandemic," according to a UBS study. The Manhattanreal estate market rebounded strongly in 2021 and 2022 as''s gradual removal of restrictions and people returning to the city. "Because supply is structurally constrained and, more importantly, the market was not at risk of a bubble, the sharp rise in interest rates had a limited impact on local home prices. From mid-2022 through mid-2023, sales prices rose more than 3 percent when adjusted for inflation and extinguished any losses accumulated during the pandemic. Overall, the Manhattanreal estate market is largely overvalued and is expected to remain stable for the time being, according to the study.

Prices in Dubai have been rising since 2021 and increased by 15% from mid-2022 to mid-2023, the fastest growth rate among all cities analyzed in the study. Growth''prices in the luxury segment were even stronger. The city is attracting real estate investors from around the world. "A new visa program with more flexible residency requirements for the wealthy and skilled, the absence of taxation on individuals and the early lifting of travel restrictions during the pandemic stimulated immigration," notes the Swiss bank. In addition, thanks to higher commodity prices, Dubai has shown strong economic and household income growth since 2021, outperforming other cities. "As a result, residential transaction volumes rose, reaching historic highs. However, inflation-adjusted prices are around 25 percent below the 2014 peak," UBS explains.

Situation in Portugal: lack of supply discourages''from a bubble scenario

The specter of a real estate bubble has been hanging over Portugal for several years now. But the truth is that market participants continue to reject this scenario as housing supply remains tight. And even if demand slows down (the number of transactions is already declining, according to the latest data from the National Institute of Statistics), we can expect prices to stabilize and sale times to increase - meaning that property sales will take longer. In addition, banks have stricter conditions than in the past, which means that the risk of default is also reduced.

Antonio Ramalho, former CEO of Novo Banco, completely rules out this possibility, despite the fact that house prices in recent years''has grown rapidly. At the PortugalReal Estate Summit, he emphasized that 'Portugal does not have and will never have a real estate market bubble'. In addition, the labor market remains stable and the demand for housing still far exceeds the supply of housing (unlike the real estate market crisis in 2008, when there was more construction than buyers). According to the manager, "the price increases were not due to an increase in household debt. "

In an interview for idealista/news, economist Vera Gouveia Barros analyzes the residential market in Portugal and also explains why she believes we are not facing the phenomenon of speculation in the real estate market. "There is a lot of talk about speculation in the real estate market and it would be good to understand what speculation is. When I have''there's a real estate, speculative bubble, I've got growth