Ranked: The World’s Biggest Real Estate Bubbles in 2021
Identifying real estate bubbles is a tricky business. After all, even though many of us “know a bubble when we see it”, we don’t have tangible proof of a bubble until it actually bursts.
And by then, it’s too late.
The map above, based on data from the Real Estate Bubble Index by UBS, serves as an early warning system, evaluating 25 global cities and scoring them based on their bubble risk.
Reading the Signs
Bubbles are hard to distinguish in real-time as investors must judge whether a market’s pricing accurately reflects what will happen in the future. Even so, there are some signs to watch out for.
As one example, a decoupling of prices from local incomes and rents is a common red flag. As well, imbalances in the real economy, such as excessive construction activity and lending can signal a bubble in the making.
With this in mind, which global markets are exhibiting the most bubble risk?
The Geography of Real Estate Bubbles
Europe is home to a number of cities that have extreme bubble risk, with Frankfurt topping the list this year. Germany’s financial hub has seen real home prices rise by 10% per year on average since 2016—the highest rate of all cities evaluated.
Two Canadian cities also find themselves in bubble territory: Toronto and Vancouver. In the former, nearly 30% of purchases in 2021 went to buyers with multiple properties, showing that real estate investment is alive and well. Despite efforts to cool down these hot urban markets, Canadian markets have rebounded and continued their march upward. In fact, over the past three decades, residential home prices in Canada grew at the fastest rates in the G7.
Despite civil unrest and unease over new policies, Hong Kong still has the second highest score in this index. Meanwhile, Dubai is listed as “undervalued” and is the only city in the index with a negative score. Residential prices have trended down for the past six years and are now down nearly 40% from 2014 levels.
Note: The Real Estate Bubble Index does not currently include cities in Mainland China.
Trending Ever Upward
Overheated markets are nothing new, though the COVID-19 pandemic has changed the dynamic of real estate markets.
For years, house price appreciation in city centers was all but guaranteed as construction boomed and people were eager to live an urban lifestyle. Remote work options and office downsizing is changing the value equation for many, and as a result, housing prices in non-urban areas increased faster than in cities for the first time since the 1990s.
Even so, these changing priorities haven’t deflated the real estate market in the world’s global cities. Below are growth rates for 2021 so far, and how that compares to the last five years.
Overall, prices have been trending upward almost everywhere. All but four of the cities above—Milan, Paris, New York, and San Francisco—have had positive growth year-on-year.
Even as real estate bubbles continue to grow, there is an element of uncertainty. Debt-to-income ratios continue to rise, and lending standards, which were relaxed during the pandemic, are tightening once again. Add in the societal shifts occurring right now, and predicting the future of these markets becomes more difficult.
In the short term, we may see what UBS calls “the era of urban outperformance” come to an end.
Visualizing The World’s Largest Sovereign Wealth Funds
To date, only two countries have sovereign wealth funds worth over $1 trillion. Learn more about them in this infographic.
Visualized: The World’s Largest Sovereign Wealth Funds
Did you know that some of the world’s largest investment funds are owned by national governments?
Known as sovereign wealth funds (SWF), these vehicles are often established with seed money that is generated by government-owned industries. If managed responsibly and given a long enough timeframe, an SWF can accumulate an enormous amount of assets.
In this infographic, we’ve detailed the world’s 10 largest SWFs, along with the largest mutual fund and ETF for context.
The Big Picture
Data collected from SWFI in October 2021 ranks Norway’s Government Pension Fund Global (also known as the Norwegian Oil Fund) as the world’s largest SWF.
The world’s 10 largest sovereign wealth funds (with fund size benchmarks) are listed below:
|Country||Fund Name||Fund Type||Assets Under Management (AUM)|
|🇳🇴 Norway||Government Pension Fund Global||SWF||$1.3 trillion|
|🇺🇸 U.S.||Vanguard Total Stock Market Index Fund||Mutual fund||$1.3 trillion|
|🇨🇳 China||China Investment Corporation||SWF||$1.2 trillion|
|🇰🇼 Kuwait||Kuwait Investment Authority||SWF||$693 billion|
|🇦🇪 United Arab Emirates||Abu Dhabi Investment Authority||SWF||$649 billion|
|🇭🇰 Hong Kong SAR||Hong Kong Monetary Authority Investment Portfolio||SWF||$581 billion|
|🇸🇬 Singapore||Government of Singapore Investment Corporation||SWF||$545 billion|
|🇸🇬 Singapore||Temasek||SWF||$484 billion|
|🇨🇳 China||National Council for Social Security Fund||SWF||$447 billion|
|🇸🇦 Saudi Arabia||Public Investment Fund of Saudi Arabia||SWF||$430 billion|
|🇺🇸 U.S.||State Street SPDR S&P 500 ETF Trust||ETF||$391 billion|
|🇦🇪 United Arab Emirates||Investment Corporation of Dubai||SWF||$302 billion|
SWF AUM gathered on 10/08/2021. VTSAX and SPY AUM as of 09/30/2021.
So far, just two SWFs have surpassed the $1 trillion milestone. To put this in perspective, consider that the world’s largest mutual fund, the Vanguard Total Stock Market Index Fund (VTSAX), is a similar size, investing in U.S. large-, mid-, and small-cap equities.
The Trillion Dollar Club
The world’s two largest sovereign wealth funds have a combined $2.5 trillion in assets. Here’s a closer look at their underlying portfolios.
1. Government Pension Fund Global – $1.3 Trillion (Norway)
Norway’s SWF was established after the country discovered oil in the North Sea. The fund invests the revenue coming from this sector to safeguard the future of the national economy. Here’s a breakdown of its investments.
|Asset Class||% of Total Assets||Country Diversification||Number of Securities|
|Public Equities||72.8%||69 countries||9,123 companies|
|Fixed income||24.7%||45 countries||1,245 bonds|
|Real estate||2.5%||14 countries||867 properties|
As of 12/31/2020
Real estate may be a small part of the portfolio, but it’s an important component for diversification (real estate is less correlated to the stock market) and generating income. Here are some U.S. office towers that the fund has an ownership stake in.
|601 Lexington Avenue, New York, NY||45.0%|
|475 Fifth Avenue, New York, NY||49.9%|
|33 Arch Street, Boston, MA||49.9%|
|100 First Street, San Francisco, CA||44.0%|
As of 12/31/2020
Overall, the fund has investments in 462 properties in the U.S. for a total value of $14.9 billion.
2. China Investment Corporation (CIC) – $1.2 Trillion (China)
The CIC is the largest of several Chinese SWFs, and was established to diversify the country’s foreign exchange holdings.
Compared to the Norwegian fund, the CIC invests in a greater variety of alternatives. This includes real estate, of course, but also private equity, private credit, and hedge funds.
|Asset Class||% of Total Assets|
As of 12/31/2020
A primary focus of the CIC has been to increase its exposure to American infrastructure and manufacturing. By the end of 2020, 57% of the fund was invested in the United States.
“According to our estimate, the United States needs at least $8 trillion in infrastructure investments. There’s not sufficient capital from the U.S. government or private sector. It has to rely on foreign investments.”
– Ding Xuedong, Chairman, China Investment Corporation
This has drawn suspicion from U.S. regulators given the geopolitical tensions between the two countries. For further reading on the topic, consider this 2017 paper by the United States-China Economic and Security Review Commission.
Preparing for a Future Without Oil
Many of the countries associated with these SWFs are known for their robust fossil fuel industries. This includes Middle Eastern nations like Kuwait, Saudi Arabia, and the United Arab Emirates.
Oil has been an incredible source of wealth for these countries, but it’s unlikely to last forever. Some analysts believe that we could even see peak oil demand before 2030—though this doesn’t mean that oil will stop being an important resource.
Regardless, oil-producing countries are looking to hedge their reliance on fossil fuels. Their SWFs play an important role by taking oil revenue and investing it to generate returns and/or bolster other sectors of the economy.
An example of this is Saudi Arabia’s Public Investment Fund (PIF), which supports the country’s Vision 2030 framework by investing in clean energy and other promising sectors.
Visualizing the Race for EV Dominance
Tesla was the first automaker to hit a $1 trillion market cap, but other electric car companies have plans to unseat the dominant EV maker.
Electric Car Companies: Eating Tesla’s Dust
Tesla has reigned supreme among electric car companies, ever since it first released the Roadster back in 2008.
The California-based company headed by Elon Musk ended 2020 with 23% of the EV market and recently became the first automaker to hit a $1 trillion market capitalization. However, competitors like Volkswagen hope to accelerate their own EV efforts to unseat Musk’s company as the dominant manufacturer.
This graphic based on data from EV Volumes compares Tesla and other top carmakers’ positions today—from an all-electric perspective—and gives market share projections for 2025.
Auto Majors Playing Catch-up
According to Wood Mackenzie, Volkswagen will become the largest manufacturer of EVs before 2030. In order to achieve this, the world’s second-biggest carmaker is in talks with suppliers to secure direct access to the raw materials for batteries.
It also plans to build six battery factories in Europe by 2030 and to invest globally in charging stations. Still, according to EV Volumes projections, by 2025 the German company is forecasted to have only 12% of the market versus Tesla’s 21%.
|Company||Sales 2020||Sales 2025 (projections)||Market cap (Oct '21, USD)|
|SGMW (GM, Wulling Motors, SAIC)||211,000||1,100,000||$89B|
Other auto giants are following the same track towards EV adoption.
GM, the largest U.S. automaker, wants to stop selling fuel-burning cars by 2035. The company is making a big push into pure electric vehicles, with more than 30 new models expected by 2025.
Meanwhile, Ford expects 40% of its vehicles sold to be electric by the year 2030. The American carmaker has laid out plans to invest tens of billions of dollars in electric and autonomous vehicle efforts in the coming years.
Tesla’s Brand: A Secret Weapon
When it comes to electric car company brand awareness in the marketplace, Tesla still surpasses all others. In fact, more than one-fourth of shoppers who are considering an EV said Tesla is their top choice.
“They’ve done a wonderful job at presenting themselves as the innovative leader of electric vehicles and therefore, this is translating high awareness among consumers…”
—Rachelle Petusky, Research at Cox Automotive Mobility Group
Tesla recently surpassed Audi as the fourth-largest luxury car brand in the United States in 2020. It is now just behind BMW, Lexus, and Mercedes-Benz.
The Dominance of Electric Car Companies by 2040
BloombergNEF expects annual passenger EV sales to reach 13 million in 2025, 28 million in 2030, and 48 million by 2040, outselling gasoline and diesel models (42 million).
As the EV market continues to grow globally, competitors hope to take a run at Tesla’s lead—or at least stay in the race.
Misc3 weeks ago
Mapped: Countries by Alcohol Consumption Per Capita
Misc4 weeks ago
Animation: How the European Map Has Changed Over 2,400 Years
Misc3 weeks ago
Here are 15 Common Data Fallacies to Avoid
Misc1 week ago
A Deep Dive Into the World’s Oceans, Lakes, and Drill Holes
Misc2 weeks ago
Visualizing The Most Widespread Blood Types in Every Country
Misc2 weeks ago
The Problem With Our Maps
Misc2 days ago
24 Cognitive Biases That Are Warping Your Perception of Reality
Technology2 weeks ago
From Amazon to Zoom: What Happens in an Internet Minute In 2021?