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(Bloomberg) -- Toronto and London are among the cities most at risk of a housing bubble as economic optimism and low borrowing costs push up property values in urban areas worldwide, according to UBS Group AG.

The Canadian city, which entered the index of 20 locations for the first time this year, has the most overvalued housing market, while London was the third-riskiest in Europe after Stockholm and Munich, the Swiss bank said in a report published on Thursday.

“The situation in London’s housing market is relatively uncertain right now -- nobody wants to burn their fingers,” Matthias Holzhey, an economist at UBS and one of the authors of the report, told reporters in Zurich. “There are more attractive places to invest in Europe, for example Frankfurt or Milan.”

Inflation-adjusted home values in the U.K. capital are almost 45 percent higher than they were five years ago and 15 percent higher than before the financial crisis while real incomes remain 10 percent lower than in 2007, according to the report. A skilled service worker needs to work almost 16 years to buy a 60-square-meter (650-square-foot) apartment near the city center, UBS said.

Buyers are betting that the world’s top cities will continue to outperform national housing markets. Together with demand from international buyers -- particularly those from China -- the world’s leading cities have seen average price growth of almost 20 percent over the past three years, the UBS data show.

Vancouver and Sydney were also in the top five in terms of risk. Chicago was the only undervalued city in the study, with three-quarters of them in danger of a bubble or overvalued, the UBS report said.

“Improving economic sentiment, partly accompanied by robust income growth in the key cities, has conspired with excessively low borrowing rates to spur vigorous demand for urban housing,” Claudio Saputelli, head of global real estate for UBS Wealth Management’s chief investment office, said in the statement.

--With assistance from Patrick Winters

To contact the reporter on this story: Jack Sidders in London at jsidders@bloomberg.net.

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Ross Larsen, Cindy Roberts

©2017 Bloomberg L.P.

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