What factors go into UBS’s Global Real Estate Bubble Index (GREBI)?
UBS publishes an annual Global Real Estate Bubble Index, which categorizes real estate prices in various cities as either “undervalued”, “fair valued”, “overvalued” or “bubble risk”.
I am currently wondering how to read/interpret this index. Obviously, I guess that owning real estate in a city classified as “bubble risk” means that UBS’s analysts believe my property might decline in value in the foreseeable future.
However, I am wondering what factors go into this index:
Increase in real estate prices (higher increase over time is worse, though this might also be brought about by more people moving into the city, or trying to move into a city that is trying to cap its growth)?
Percentage of objects inhabited by their owners (the lower, the bigger the risk, although this is also heavily influenced by cultural factors, as different countries have different general opinions on buying vs. renting)?
Supply/demand on the rent market (a lot of vacant rental properties drive up the index)?
Others?
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Its really a valuation question, when will the bubble pop due to resource depletion vs what are rental yields now. Falling rents and rising prices indicate that rental yields arent sustainable.
Rental yields are probably the main thing used to measure overvaluation, especially if not justified by population density and income.
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