Vancouver, London and Stockholm filled the top three places in a list of cities seen as having the highest risk of a housing bubble. The 2016 Global Real Estate Bubble Index compared property prices against underlying economic conditions in 18 of the world’s top financial centres to determine if property prices could be artificially high. Carried out by the Swiss bank UBS, Sydney, Munich and Hong Kong were also seen to be experiencing housing bubbles.

With the price of homes in the Canadian city doubling in the last 10 years, Vancouver rose from fourth place last year to first place this year partly due to a big influx of Chinese buyers into the city. In an attempt to slow down price growth, the provincial government imposed a 15% tax on foreign buyers in August.

London, taking top spot last year, dropped to second and was still seen as having an overvalued market at major risk of prices suddenly falling. In all of the cities described as ‘at risk’, prices have, on average, risen by more than 50% since 2011. Apart from Milan, all of the European cities in the report – Paris, Geneva, Amsterdam Frankfurt and Zurich – were seen as having overvalued markets. In the US, San Francisco was said to be at most risk, though not yet at bubble risk.

Analysts believe that low interest rates in particular have fuelled demand in urban residential property, pushing up prices across Europe. Claudio Saputelli of UBS Wealth Management, said the “excessively” low interest rates common to these European cities were “inconsistent with the robust performance of the real economy…which has produced an ‘ideal’ setting for excessive house prices”.

The report, also known as simply the Bubble Index, does admit that a housing bubble can’t be proved until it actually bursts. Nevertheless, it warns that a sharp increase in the supply of property, shifts in the flow of capital internationally or simply higher interest rates could “trigger a major price correction at any time”.

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