I.In many cities, housing prices are moving further and further away from what even high-earning workers could still pay. According to an international analysis by the major Swiss bank UBS, the two German cities of Munich and Frankfurt are at the forefront of this worrying development. Overall, according to UBS, there is a risk of a bubble in the housing market in 5 major European cities.
While Munich is at the top of this risk zone for the second time, Frankfurt has left the metropolises of Amsterdam, Hong Kong and Toronto behind within a year and is now in second place in the global UBS bubble ranking. In a global comparison, Europe has developed into the region with the most overheated housing markets. “No other city in the world is as exposed to the risk of a real estate bubble as Frankfurt and Munich,” said Maximilian Kunkel, chief investment strategist for UBS in Germany. Kunkel warns investors against excessive return expectations, also because current property prices have not yet reflected the long-term consequences of the corona pandemic.
According to UBS, the housing markets remained largely stable in the first half of 2020 despite the Corona crisis. Among other things, this is due to the fact that house prices are a lagging indicator and only react to a downturn with a time lag. In addition, most homebuyers did not suffer any immediate loss of income in the first half of the year. Aid loans for companies and short-time work would have mitigated the consequences of the pandemic.
Nine annual salaries for only 60 square meters
In the case of Munich, housing prices are rising mainly because of the strong local economy combined with attractive financing conditions and solid population growth. The undersupply of living space in the Bavarian capital has therefore worsened, according to UBS. To buy a 60 square meter apartment near Munich city center, a qualified employee from the service sector currently has to raise around 9 annual income. By renting out such an apartment, the purchase price can only be recovered after 39 years, which is longer in Munich than in any other metropolis in the world.
In the case of the banking and stock exchange city of Frankfurt, housing prices have doubled over the past decade, according to UBS. Real prices rose by 8 percent in the past year alone. As one of the largest financial centers in Europe, Frankfurt has benefited from solid economic and employment growth. At the same time, the population has grown, which is due to both a surplus of births and migration. As a result of this development, rents in Frankfurt have risen by almost 40 percent since 2010. In addition, project developers have primarily targeted the upper market segment, which is further fueling property price inflation and making the city increasingly unaffordable for its citizens.