Despite the looming threat of an economic crisis, new housing in Munich still fetches an astonishing 10.000 euros per square metre, on average. That makes the Bavarian city home to the most overvalued real estate market in the world, according to a new study - and another German city takes second place. 

Munich and Frankfurt top Global Real Estate Bubble Index

According to a new study by the Swiss bank UBS, the real estate markets in Munich and Frankfurt are the most overheated in the world. The latest UBS Global Real Estate Bubble Index found that the cost of housing in both cities poses an “acute bubble risk” that is higher than anywhere else in the world - including cities like New York, Tokyo, Tel Aviv and London. 

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. Each year, it calculates the bubble index for 25 cities around the world that are deemed attractive to investors. 

Housing markets in Munich and Frankfurt rapidly overheating

This trophy should come as no surprise to residents of Munich, since their city already topped the ranking in 2019 - although it has increased its bubble risk score from 2,01 to 2,35. The study shows, however, that prices are getting more and more out of hand in Frankfurt, which within the space of a year has overtaken Hong Kong and Toronto to claim second place with an overall score of 2,26, up from 1,71 last year. 

The study’s authors point to price development on the real estate market as the primary driver of Frankfurt’s rise. Rents in the city have risen by almost 40 percent since 2010, and house prices have doubled within a decade. Last year alone, real prices (adjusted for inflation) rose by eight percent. The city is benefiting from solid economic and employment growth, but the population has also grown rapidly - both through births and migration. 

In Munich, it is the strong local economy and the lack of living space, combined with population growth, that is fuelling the meteoric rise of house prices. According to the report, a qualified employee working in the service sector would currently have to earn around nine times the average salary to buy a 60-square-metre apartment near the city centre. 

The most overpriced real estate markets in the world

Elsewhere in Europe, the report shows that there are also bubble risks in Amsterdam and Paris and, for the first time this year, in Zurich. In London, on the other hand, the real estate market is still “only” overvalued. According to the UBS analysts, the British capital recorded the weakest price development since 2016 last year. 

The full ranking for the 2020 Global Real Estate Bubble Index was as follows:

• 1. Munich - 2,35
• 2. Frankfurt - 2,26
• 3. Toronto - 1,96
• 4. Hong Kong - 1,79
• 5. Paris - 1,68
• 6. Amsterdam - 1,52
• 7. Zurich - 1,51