‘Sydney housing market near top of world risk’

Sydney’s housing market is one of the most risky in the world, ranking fourth in major cities facing a housing bubble.

Property prices in Sydney peaked in the second half of last year after rising 45 per cent since mid-2012, the report found. Picture: John Appleyard

Sydney’s housing market is one of the most risky in the world, ranking fourth in an index of major cities facing the threat of a housing bubble.

Vancouver, where house ­prices have surged more than 25 per cent since the end of 2014, tops a global real estate bubble index collated by investment bank UBS. London and Stockholm also led Sydney on the list, which found six financial centres in the highest risk category. Only Chicago ranks among the 18 cities assessed as “undervalued”.

“House prices of the cities within the bubble risk zone have increased by 50 per cent on average since 2011,” UBS noted. The other cities in the report had seen average growth of 13 per cent.

In 2012, Sydney was at the bottom of a list of Asia Pacific cities, but moved to the top of the index in four years.

Property prices in Sydney peaked in the second half of last year after rising 45 per cent since mid-2012, the report found, but price growth had slowed this year, falling back to single-digit ­increases.

Foreign demand, particularly from China, had tripled in value over the past three years, fuelling price growth.

However, the wave of new development and taxes to cool offshore buyers may end Sydney’s price boom “rather abruptly”, UBS said.

Figures from the Australian Bureau of Statistics for the June quarter showed Australia’s housing price growth had eased to its slowest pace in more than three years, with Sydney’s prices rising 3.6 per cent in the year to June, down from 9.7 per cent in the 12 months to March.

While the rate of growth has slowed, Sydney’s auction clearance rates remain buoyant at more than 80 per cent, with agents reporting a lack of new listings compared with a year ago.

 

Ray White chairman Brian White told The Australian there was a chronic shortage of new homes coming on to the market. “It’s staggering,” he said, noting this was helping to support some still strong prices in Sydney.

UBS global real estate head Claudio Saputelli and Swiss head Matthias Holzhey said global economic conditions had fuelled the flight to bricks and mortar.

The pair noted that more than a third of all government bonds offered negative yields while property was a tangible asset.

“It’s hardly any wonder that housing markets are again overheating, just a few years after the last major wave of global correction,” they wrote in the report.

UBS’s bubble cities all had “excessively” low interest rates, which did not reflect the robust real economies.

Australian economists largely expect the Reserve Bank to keep interest rates at the historically low 1.5 per cent, with some forecasting rates may fall further.

Of the four most important global financial centres, UBS said the risk of a bubble was on the rise only for London.

“In New York, Hong Kong and Singapore, valuations stagnated or decreased over the last year,” the bank said.

While the term “bubble” has been bandied about for many years, UBS said that a “bubble” could be regarded as “sustained mispricing”. “A bubble cannot be proven conclusively unless it bursts, but recurring patterns of property market excesses are ­observable,” UBS said.