Six major financial centers around the world are at risk of a housing bubble, with Vancouver topping the list, according to UBS Group AG.
Bubble risk also seems imminent in London, Stockholm, Sydney, Munich and Hong Kong, said the Swiss global financial services company in its 2016 Global Real Estate Bubble Index report, released earlier this week. The index tracks 18 global financial centers, measuring overall housing prices and affordability.
House prices in these near-bubble six cities have increased almost 50% on average since 2011. Low interest rates, global capital inflows and optimism among investors about returns have helped to inflate values, UBS said.
Vancouver’s ranking soared to first from fourth place in 2015. Housing prices in the Canadian city have increased by more than 25% since the end of 2014, due to a weak Canadian dollar which stimulated greater demand from Asian buyers. In August, the provincial government imposed a 15% tax on foreign buyers in an attempt to cool the market.
In the U.S., San Francisco has the most overvalued housing market, but is not yet at risk of a bubble.
"In the wake of technology boom and buoyant foreign demand, real house prices have increased in San Francisco by more than 50% since 2011, while the national price level has risen by just 15%," UBS said in the report.
Boston and New York fall in the "fair-valued zone," In New York, house prices in the metropolitan area are almost 25% lower than 10 years ago, according to UBS. In the second quarter of this year, residential prices increased by less than 2% after adjusting inflation. It was the fourth consecutive year the price growth in New York lagged the U.S. average. "The rebound in price growth rates has largely run out of steam, particularly at the high end," UBS said.
Chicago was at the bottom of the list, with prices that have only recovered by 10% over the last four years.
| Bubble Risks in Selective Cities | |||
| City | Ranking | Bubble Score | Risk Zone |
| Vancouver | 1 | 2.14 | Bubble Risk(>1.5) |
| London | 2 | 2.06 | Bubble Risk(>1.5) |
| Hong Kong | 6 | 1.52 | Bubble Risk(>1.5) |
| San Francisco | 7 | 1.27 | Overvalued(0.5 to 1.5) |
| Paris | 10 | 0.82 | Overvalued(0.5 to 1.5) |
| Singapore | 14 | 0.45 | Fair-valued(-0.5 to 0.5) |
| New York | 16 | 0.13 | Fair-valued(-0.5 to 0.5) |
| Chicago | 18 | -0.70 | Undervalued (-1.5 to -0.5) |
| Source: UBS Group |
The index didn’t include China’s Mainland, where first and second-tier cities have been experiencing a runaway boom. Residential prices in major Chinese cities are rising at an annual pace of 30% or 40% in 2016, according to an estimate by Bank of China. Many cities have rolled out cooling measures including raising the down payment and banning non-local residents to buy a second home.
Despite all these measures, China is still facing a possible burst, warned Wang Jianlin, chairman of Dalian Wanda Group, the country’s largest real estate developer as well as the world's largest movie theater operator.
"It’s the biggest bubble in history... I don’t see a good solution to this problem. The government has come up with all sorts of measures-limiting purchase or credit-but none have worked," he said Wednesday at an appearance on CNN.
Write to Fang Block at fang.block@dowjones.com