we have three teams as hot favorite for title in Champions League and these are Manchester City, PSG and Bayern Munich
You left Real Madrid out of this and for the record alongside all those three teams that you have listed, Real Madrid has also won twice so far so there is no reason to leave them out of the equation for now. Well if you insist on doing only top three teams then you should probably leave PSG out of it because Im not convinced that they are going to win anything out of their domestic league
Yes, Real Madrid are the favorites in the Champions League, because they have the mentality for it. In fact, I rank them as favorites every season, although many doubt they won't speak much more in the Champions League. There is no reason not to put them in the list of favorites this season for what they have achieved in La Liga and also in the Champions League chapter.
But for now if I compare between PSG and Bayern Munich it seems PSG is definitely better, when Bayern Munich's dominance in the Bundesliga starts to crumble then of course Bayern Munich will place a higher focus on the Bundesliga. Although indeed, so far Bayern Munich is still doing well in the Champions League by leading group C but if its performance worsens in the Bundesliga I am personally quite sure the performance will be unconvincing as well to be able to advance further in the Champions League.