The French capital and the Lombardy capital are two exceptions to the bubble risk affecting the global real estate market

Over the past 10 years, the global real estate sector has experienced extremely advantageous financing conditions, a consequence of the monetary choices of central banks. Moreover, in cities, this has been accompanied by a demand for housing that exceeds availability, leading buyers to have increasingly optimistic price expectations.

In recent months, however, conditions have changed abruptly. Rising interest rates, decided upon to counter high inflation, and shocks that have shaken the financial markets, are cooling demand for housing.

UBS Global Real Estate Bubble Index: cities at risk

According to the UBS Global Real Estate Bubble Index this reversal puts some cities particularly at risk of a housing bubble.

While Toronto (Canada) has the most pronounced price and demand characteristics that can lead to fears of a real estate bubble, the Eurozone is also not safe from this risk. For example, Frankfurt and Munich are, together with Amsterdam, among the 10 cities with a risk index above 1.5. Both German cities and the Dutch capital have seen real estate prices more than double in nominal terms over the past decade and the trend does not seem to be slowing down even in the changed conditions of 2022.

Not worrying, however, is the situation in Milan and Paris, which are at the lower end of the UBS ranking with a bubble risk of 0.34 and 1.21 respectively.

The Paris housing market is an anomaly: in the last two years, while wages have recovered, nominal property prices and rents have remained substantially static and significantly below the country’s average. A dynamic that has pushed the French capital out of the bubble risk zone although Paris remains the least affordable real estate market in the Eurozone, according to the UBS study.

In Milan, after a decade of stagnation, property price growth has been sustained by a number of factors: the post-pandemic economic recovery, low-interest rates, and tax incentives for renovation and energy efficiency.  Added to this, in the medium term, is the completion of a new metro line and the flywheel effect of the 2026 Winter Olympics, which will help support price and valuation growth in Lombardy’s capital city.