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UBS Says Tel Aviv Real Estate at High Bubble Risk

Tel Aviv

According to Union Bank Switzerland (UBS), Tel Aviv is at serious risk of seeing a real estate bubble burst in the near future. This is the first time that Tel Aviv was cited as a bubble risk by UBS and it came in eighth on the list behind major world cities like Frankfurt and Toronto.

Israelis have been complaining for years about the high price of rent and new homes. It is part of the overall problem of the country’s high cost of living. New apartment buildings are going up everywhere in areas like downtown Jerusalem. But these all seem to be luxury buildings whose apartments usually get bought by absentee wealthy foreign owners. These landlords tend to then sublet the apartments as vacation rentals. This exacerbates the problem of the high rents that average Israelis must pay in the cities.

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So, the average Israeli may not be concerned should the real estate bubble burst. In fact, they may welcome it. This could mean that new families looking to buy a home will be able to find bargains and even be able to afford to live in Tel Aviv once again.

According to UBS, housing prices in Tel Aviv roughly tripled between 2001 and 2017. Rents almost kept pace with the price increases, said the bank, reflecting a fundamental housing shortage.

After a brief period of correction in 2018,” explained UBS, “the market was back in another explosive phase of price growth. Between mid-2021 and mid-2022 alone, prices climbed by 18%, the highest rate since 2010. And outstanding loan volumes shot up by 18% as well, the fastest pace in 25 years. Consequently, the market ranks in bubble risk territory for the first time.”

Higher mortgage rates and stretched affordability did cause a brief period of correction, but by 2019, the market was back in another explosive phase of price growth. Between mid-2021 and mid-2022 alone, prices climbed by 18%, the highest rate since 2010.

Outstanding loan volumes shot up by 18%, the fastest pace in 25 years. “Consequently, the market ranks in bubble risk territory. A discussed relaxation of the maximum loan-to-value ratio for first-home buyers would heat up the market even more. However, the probability of a sharp but short-lived correction is high, if mortgage rates rise further.”



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