Frankfurt topped the 2021 Global Real Estate Bubble Index, according to a MoneyTransfers.com data analysis. The analysis gave the city a 2.16 index putting it at the fore of the urban centers with the riskiest housing markets.
Several reasons explain Frankfurt’s rise to the top of the list. First, it has continued to experience robust price growths since 2016. At press time, its price growth is about 6% annually.
Secondly, the city’s solid economic growth is behind the upsurge in property prices. Its population has swollen by 12 percent in the last decade. However, construction hasn’t kept pace with the growing demand pushing rents up by 3% annually.
Furthermore, affordable mortgages and financing conditions have exacerbated the situation. The soaring rents have attracted speculators looking to invest in buy-to-let properties. Again, most developments have concentrated on the luxury market, inflating the prices further.
The city’s unaffordability pushes it to the brink of a property bubble. For starters, its price to income ratio has doubled. Moreover, its population is declining as more people opt to work remotely and relocate to suburban residences.
The study categorized global cities into four groups depending on their risk index:
- Bubble risk -Have an index of above 1.5
- Overvalued cities – Have a risk index of between 0.5 and 1.5
- Fair valued cities – Indices lie between -0.5 and 0.5.
- Undervalued cities – Had indices of between -1.5 to -0.5.
Cities with elevated risk
Toronto and Hong Kong joined Frankfurt in the cities with elevated bubble risks. Munich, Zurich, Vancouver, and Stockholm also fall under this category. And rounding up the category were Paris and Amsterdam.
Overvalued and undervalued cities
Tokyo, Sidney, Miami, and Los Angeles are overvalued cities. Similarly, Geneva, London, Moscow, and Tel Aviv are overvalued, as are San Francisco, Boston, New York, and Singapore City.
Madrid, Milan, and Warsaw were moderately priced, while Dubai was undervalued.