Home News Tel Aviv’s red-hot housing market a ‘bubble risk,’ warns global banking firm

Tel Aviv’s red-hot housing market a ‘bubble risk,’ warns global banking firm

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International investment bank and wealth manager UBS expects a severe shock to global housing prices, and Tel Aviv is one of the cities it has identified as vulnerable.

Annual global real estate bubble index of Swiss companies report For 2022, the recent shock to financial markets, rising interest rates, and inflation will hit home prices, leading to a period of stagnation (i.e., a period of no further price appreciation) or, in the most extreme cases, He said it would lead to lower valuations.

in Tel Aviv, most expensive city Globally, real estate prices and rents are rising steadily.

The UBS report assesses and groups the housing markets in cities around the world based on sub-indicators such as affordability (price to income), rental prices, changes in mortgage rates and construction activity. . The company believes that the market is at risk of a market correction as properties are valued, considered too high, and grossly overvalued.

Each city is given a score from below -1.5 (undervalued market) to above 1.5 (bubble risk).

At 1.59, Tel Aviv approaches the bottom of the list of cities in the risk zone that includes Tokyo, Munich, Zurich, Frankfurt and Vancouver, while Toronto tops the index (with a score of 2.24). This year’s report marks the first time in eight years that UBS has compiled the index that Tel Aviv has been listed as a “bubble risk.”

UBS defines a housing bubble as “substantial and persistent mispricing of assets whose existence cannot be proven unless it bursts”. This means it’s impossible to know if a price drop is imminent until properties start to fall in value to attract buyers.

General view of buildings in the center of Tel Aviv on December 2, 2021. (Tomer Neuberg/Flash90)

According to UBS, typical signs of a bubble in the housing market (many of which clearly apply to Tel Aviv) include “the decoupling of prices from local income and rents, the economic imbalance”. “

In the cities at risk, house prices have risen by at least 60% over the past decade, and average wages have risen by about 12%. The latest figures from the Israeli Central Bureau of Statistics, in Tel Aviv, Average price of an apartment is currently over NIS 4,000,000 ($1,234,777), average wage May’s NIS was 11,753 ($3,514) and NIS 26,828 ($8,019) in tech.

In Tel Aviv, UBS estimates that a skilled worker would have to work for at least 11 years to buy an 80-square-meter (861-square-foot) apartment near the city centre. This puts Tel Aviv in the top five most affordable cities for its population. The city is also highly rated for its price to rent ratio. UBS has calculated that it will take more than 40 years for the rent payments to cover the property’s value, and Tel Aviv’s rental rates are still rising despite rapid increases. I am checking the facts. A lot cheaper than the purchase price.

“Nominal house prices in Tel Aviv nearly tripled between 2001 and 2017. Rents have roughly kept pace with rising prices, reflecting an underlying housing shortage.” said the report.

A view of the intersection of Allenby Street in Tel Aviv. (rglinsky via iStock by Getty Images)

Since 2019, Tel Aviv’s housing market has entered another “explosive phase of price appreciation,” according to UBS. Between mid-2021 and mid-2022 alone, house prices will Rose At 17.8% annualized, the fastest in 10 years, “loan balances are also growing 18%, the fastest pace in 25 years.”

The report notes that ongoing debates over easing loan-value ratios could push prices up even faster. Mortgage borrowing is currently limited to 75% of the initial home price, which, combined with monthly payments limited to 33% of a household’s net salary, acts as a brake on rising prices. , protecting lenders from the risk of housing deflation.

However, UBS said, “If mortgage rates rise further, a sharp but short-term correction is likely.”Israel Bank Raised The benchmark rate rose to 2.75% earlier this month, marking the fifth rate hike in 2022.

Los Angeles, New York, San Francisco, London, Paris and Singapore were in the “overvalued” zone, while Dubai, Milan, São Paulo and Warsaw were among the cities with “fairly priced” homes, according to the index. market.

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