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Residential buildings in Munich: Here, home prices have recently fallen by around 15 percent

Photo: Rolf Poss / IMAGO

The square meter for 10,000, 11,000 or even 12,000 euros? In Munich's top locations, this has long been part of everyday life. But are there also corresponding values behind these prices? A recent survey by UBS raises doubts about this. According to the current "Global Real Estate Bubble Index", the situation in the Bavarian capital has eased somewhat, but it remains in fourth place in the ranking – worldwide. According to the report, the housing market in the "cosmopolitan city with a heart" is still considered to be highly overvalued.

Overall, according to the study, in which the economists focus on the real estate markets in 24 metropolises worldwide, valuations in the German cities surveyed have declined. This is due to the sharp rise in interest rates and strong inflation. And so, in Frankfurt and Munich, too, real home prices have fallen by around 2022 percent and around 20 percent respectively since the peak at the beginning of 15.

Price-to-rent ratio in Munich is one of the highest in the world

Accordingly, according to the study, the risk of the real estate bubble bursting has weakened significantly, especially in Frankfurt. While the financial metropolis ranked second in the world in 2022, the city has now slipped to fifth place. According to the study, Zurich and Tokyo in particular have an acute risk of bubbles, occupying first and second place. Munich remains in fourth place behind Miami.

However, Munich and Frankfurt are still considered very expensive and also more expensive than they should actually be. "In a global comparison, both cities remain at the upper end and thus remain overvalued," said Tobias Vogel, head of UBS Europe.

In Munich, for example, the price-to-rent ratio remains one of the highest in the world, according to the study. According to the survey, the number of years that an apartment of the same size has to be rented out to cover the cost of the apartment is currently 39 years on average. This index is higher only in Zurich, Geneva, Hong Kong and Tel Aviv. In recent years, strong economic and labour market growth coupled with low mortgage rates and strong investment demand in particular have led to continuously rising prices, especially since supply is tight.

For Frankfurt, on the other hand, the economists are not yet giving the all-clear despite the easing of tensions. The declining construction activity with rising population numbers suggests that a "worsening of the housing shortage and further rent increases in the future" can be expected, albeit not in all price ranges. Requirements for energy-efficient refurbishment, on the other hand, could again depress property values.