Sydney housing bubble ‘one of world’s riskiest’

The New Daily
Sep 28, 2016, updated Oct 01, 2016

What housing should be in normal markets is at or below three times household earnings, so Sydney is four times what it should be." Photo: Getty

Sydney is at risk of a housing bubble after ranking fourth in an index of major cities facing the threat, according to a UBS report.

The UBS Global Real Estate Bubble Index report analysed residential property prices in 18 cities around the world, determining the world’s most risky.

Vancouver topped the list, where house prices have soared 25 per cent since the end of 2014.

The report noted that prices within the “bubble risk zone” increased by 50 per cent on average since 2011.

“What these cities have in common are excessively low interest rates, which are not consistent with the robust performance of the real economy,” the report stated.

In 2012, Sydney was at the bottom of the list for Asia Pacific cities, but four years on it now sits comfortably in the upper echelon.

Property prices in Sydney have risen 45 per cent since mid-2012, however its rapid incline has tapered, falling back to single-digit increases, according to the report.

The report outlines the city becoming a target for foreign investments, which are overheating the risky market.

“When combined with rigid supply and sustained demand from China, this has produced an ideal setting for excesses in house prices,” it said.

“The situation is fragile for the most overvalued housing markets. A sharp increase in supply, higher interest rates or shifts in the international flow of capital could trigger a major price correction at any time.”

Other cities with a housing bubble risk include Stockholm, Munich, San Francisco, Zurich, Paris, Geneva, Tokyo and Frankfurt.

Melbourne was not flagged as a risk in the report.