Hong Kong is the place most at risk of a property bubble, according to a ranking from UBS Group AG.
Munich, Toronto, Vancouver, Amsterdam and London are the next most vulnerable in the bank’s Global Real Estate Bubble Index of 20 major centers for this year.
Prices rising at an average of 35 percent in major cities over the past five years have contributed to a “crisis of affordability,” the bank said. “Most households can no longer afford to buy property in the top financial centers without a substantial inheritance.”
Still, the risks are more contained than in the run-up to the global financial crisis, since mortgages are growing more slowly than during that period, and there is no evidence of “simultaneous excesses” in lending and construction, the bank said.
Investors “should remain selective within housing markets in bubble-risk territories such as Hong Kong, Toronto and London,” UBS Global Wealth Management chief investment officer Mark Haefele said in a statement.
The first cracks in the global housing boom have appeared, the report said, citing price declines in four of the eight cities listed as bubble risks last year: Sydney, Stockholm, London and Toronto.
Tighter lending and interest-rate increases brought a price rally to an abrupt end in Sydney, it said.
The Australian city and Sweden’s capital both exited the “bubble risk” category.
Overall, prices in most of the 20 cities grew “considerably” less in the past four quarters than in previous years, the report said.
However, an “explosive uptrend” was evident in the largest eurozone economies, as well as Hong Kong and Vancouver. New York was among centers deemed over-valued. Only Chicago was rated as under-valued.
Hong Kong also topped the ranking for the number of years that a skilled service worker needs to work to be able to buy a 60m2 apartment near the city center. The 22 years required compared with 15 years in London, the runner-up.
UBS assesses bubble risks by looking for signs such as prices decoupling from local incomes and rents, and imbalances in economies, such as excessive lending and construction activity, it said.
Cryptocurrency exchanges and investment funds are leasing space in several of the most prestigious buildings in Hong Kong, home to the highest rents anywhere.
Companies from BitMEX to Diginex Ltd have signed up for a combined 6,690m2 of grade A space in Central and Causeway Bay this year, according to Colliers International Inc.
That represents about 15 percent of the grade A space taken up since January on Hong Kong Island by mainland Chinese firms, which have dominated the territory’s market for prime office buildings in recent years.
Soaring rents have prompted tenants, including BNP Paribas SA and Goldman Sachs Group Inc, to seek cheaper locations for some staff.
Real estate agent and property developer JSL Construction & Development Co (愛山林) led the average compensation rankings among companies listed on the Taiwan Stock Exchange (TWSE) last year, while contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) finished 14th. JSL Construction paid its employees total average compensation of NT$4.78 million (US$159,701), down 13.5 percent from a year earlier, but still ahead of the most profitable listed tech giants, including TSMC, TWSE data showed. Last year, the average compensation (which includes salary, overtime, bonuses and allowances) paid by TSMC rose 21.6 percent to reach about NT$3.33 million, lifting its ranking by 10 notches
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