SINGAPORE – For decades, the housing equation was relatively straightforward. What people paid for a home depended largely on what they earned and how much they could borrow.
That relationship is becoming more complicated.
Buoyant equity markets have boosted the purchasing power of affluent households, while the artificial intelligence (AI) investment boom is creating substantial wealth in technology centres. Such buyers can make bigger down payments or purchase homes outright, making them less sensitive to mortgage rates.
For ordinary households, however, affordability remains stretched. And higher borrowing costs could bite harder if, as we expect, the Federal Reserve raises rates further by 25 basis points in December and March.
The result is a global housing cycle that is becoming more idiosyncratic.
The latest UBS Global Real Estate Bubble Index offers a window into this changing dynamic. Now in its 12th year, the index assesses private housing-market imbalances across 23 global cities, comparing home prices with incomes and rents, alongside credit and construction activity, among other factors. It does not predict when corrections will occur, but identifies markets where vulnerabilities appear greatest.
Globally, bubble risk is broadly unchanged from 2025. But the headline masks considerable differences.
When AI wealth meets property
Seoul, which recorded one of the biggest increases in bubble risk, illustrates how financial wealth can reshape housing demand. Residential prices surged 50% between 2017 and 2021, then fell 20% as interest rates rose. The subsequent rebound has been striking: Inflation-adjusted prices are up 11% over the past year.
As a major technology and AI hub, Seoul is benefiting from the wealth generated by the investment boom. So too is San Francisco, with technology employment and equity wealth supporting parts of its housing market despite elevated borrowing costs.
For property markets, where wealth is being created may increasingly matter as much as where interest rates are heading.
When prices outrun incomes
Meanwhile, Zurich and Tokyo top the UBS index and are its only high-risk cities.
Over the past 20 years, Zurich’s real house prices have risen almost 140% versus increases of 40% in rents and 30% in incomes. Housing shortages and international talent inflows have sustained demand, but valuations are increasingly stretched.
Tokyo faces similar tensions. Real home prices have risen around 50% over seven years, roughly five times the growth in real incomes. Prices have climbed another 6% over the past year, while newly built apartments in central Tokyo have risen around 20%, pushing more domestic buyers towards suburban homes.
Higher Japanese interest rates have yet to derail the market, with demand supported by rising wages (over 4% among younger workers, well above short-end and long-end interest rates of around 1.25% and 3% respectively) and foreign buyers.
High bubble risk does not imply an imminent correction, but the widening gap between prices and incomes in both cities leaves less room for disappointment.
When policy changes the equation
London demonstrates how quickly property fortunes can reverse. It topped the UBS bubble-risk ranking in 2016, the year of the Brexit referendum. A decade later, it sits at the lower-risk half of the index. After five years of weakness, real home prices are now more than 15% below their 2021 level.
Scarce housing and near-record rents have not been enough to offset stretched affordability, higher taxes on expensive properties, and an outflow of wealthy residents. Sterling weakness and lower prices have attracted international buyers at the top end but the broader market remains subdued. London’s experience shows that even severe housing shortages cannot always overcome weak affordability and unfavourable policy conditions.
Sydney offers a similar lesson. Real prices have fallen 4.4% over the past year as borrowing costs eroded affordability. Housing shortages and immigration remain supportive, but without meaningful rate relief, a sustained recovery looks difficult.
Hong Kong rebounds, Singapore holds steady
Closer to home, Hong Kong and Singapore remain in the index’s moderate-risk category, despite contrasting market trends. Hong Kong is emerging from a prolonged correction: After real house prices fell more than 30% between 2018 and 2025, they have rebounded 8.7% over the past year. Lower mortgage rates have revived new-home sales, while inflows of professionals from mainland China have supported demand.
Despite the recovery, Hong Kong’s moderate-risk classification suggests current private residential valuations are not yet reflecting the excesses seen in other global cities.
Singapore has been considerably more stable. Real private residential prices have risen around 1% over the past year, while rents have been broadly flat. Local owner-occupiers and upgraders are the main sources of demand, as elevated stamp duties continue to restrain foreign purchases.
Prudential safeguards add to that stability. Debt-servicing rules generally cap monthly debt commitments at 55% of income, while banks apply interest-rate buffers when assessing mortgage affordability. Together with healthy household balance sheets and calibrated housing supply, these measures should help keep private residential prices broadly stable despite elevated interest rates.
Bond market still matters
This does not mean interest rates have lost their influence.
As investors repriced the outlook for growth and sticky inflation, government bond yields have risen sharply. In the US, the 10-year Treasury yield has climbed roughly 95 basis points since the start of the year to 5.1%, while the two-year yield has risen around 130 basis points to 4.8%.
Long-term inflation expectations remain well anchored, with the 10-year US breakeven inflation around 2.35%, but persistent near-term inflation should keep financing costs elevated.
Housing markets may adjust only gradually, as fixed-rate mortgages, savings and cash purchases cushion the impact. But prolonged high borrowing costs eventually weigh on affordability and valuations.
Already, an average skilled service worker across the cities surveyed can afford roughly one-third less private residential living space than in 2021, before the global interest rate rise. In many markets, buying rather than renting increasingly depends on expectations of further property appreciation.
For investors, citywide averages tell only part of the story. As new wealth, scarcity and policies shape demand alongside income, understanding local dynamics will help savvy investors stay ahead.
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The writer is the Asia-Pacific head of UBS Global Wealth Management’s Chief Investment Office.
