Sydney property bubble at risk of bursting, new report finds

A new global report has singled out Sydney’s property market as being “overvalued” and on the brink of collapse over a “bubble risk”.

Eastern Europe, Dangerous Narrative

25/10/2021 1:20:00 AM

A new global report has singled out an Australian city as being “under the spell of a dangerous narrative ” with property prices at risk of a sudden collapse.

A new global report has singled out Sydney ’s property market as being “overvalued” and on the brink of collapse over a “ bubble risk ”.

Sydney, the only Australian city to be included, was named and shamed for its “double digit price growth” creating housing market imbalances largely unparalleled on the rest of the planet and setting it up for a large fall.Sydney was just one tier away from the highest danger zone in the report, known as the “bubble risk”.

a substantial and sustained mispricing of an asset [such as a property], the existence of which cannot be proved unless it bursts”.Every other city including Sydney was either overvalued or very much at risk of having their bubble burst.Although Sydney sat close to the middle, in rank number 11, the NSW capital came in second in terms of overvalued cities.

Read more: news.com.au »

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International investment bank UBS released its Global Real Estate Bubble Index 2021 earlier this month which analyses residential property prices in 25 major cities around the world. Sydney, the only Australian city to be included, was named and shamed for its “double digit price growth” creating housing market imbalances largely unparalleled on the rest of the planet and setting it up for a large fall. In the report, Sydney’s property market was described as being “under the spell of a dangerous narrative”. The new research also warned over the risk of Sydney’s property “bubble” bursting, with rampant buying and speculation reaching a point where the entire market would eventually collapse. Sydney was just one tier away from the highest danger zone in the report, known as the “bubble risk”. Sydney wasn’t far off from the red zone. UBS researchers defined the bubble risk as “ a substantial and sustained mispricing of an asset [such as a property], the existence of which cannot be proved unless it bursts”. The report broke housing markets into four categories: “bubble risk”, “overvalued”, “fair valued” and “under valued”. Just one city, Dubai, was in the “undervalued” category, while only three places – Madrid, Milan, and Warsaw – were fairly priced. Every other city including Sydney was either overvalued or very much at risk of having their bubble burst. The 25 cities analysed in the report. Frankfurt’s real estate market ranked worst on the list as most in danger of imploding. Although Sydney sat close to the middle, in rank number 11, the NSW capital came in second in terms of overvalued cities. “On average, bubble risk has increased during the last year, as has the potential severity of a price correction in many cities tracked by the index,” the research said. Sydney came in at number 11. Frankfurt hogged the worst position in the report. House price growth in the 25 cities surged by 6 per cent from mid-2020 to mid-2021, the highest increase since 2014. All but four cities – Milan, Paris, New York, and San Francisco – saw their house prices increase in the last year. Sydney’s house market imbalances was criticised as “high” alongside Tokyo, Geneva, London, Moscow, Tel Aviv and Singapore. Double-digit growth was only recorded in five cities including Sydney as well as Moscow, Stockholm, Tokyo and Vancouver. Sydney increased by almost 14 per cent, the third-strongest rise among all the cities. Sydney was compared to other cities around the world. It wasn’t all bad news for Sydney homeowners, however. “Easier lending standards and rate cuts by the Reserve Bank of Australia have reflated the market,” the report noted. “After a short-lived but sharp price correction between 2018 and 2019, the housing market rebounded. “Overall, the market has recovered from all losses, and prices have reached the highest level on record. “Price growth has clearly outpaced local incomes, stretching affordability and thereby increasing dependence on easy financing conditions even further.” Sydney ranked well in other measures in the report. And for other areas in the report, Sydney performed well. Australia’s generous wage for skilled workers meant it takes much fewer years to be able to afford an apartment than other areas of the world. In Hong Kong, which ranked the worst, a skilled employee needs to work for 20 years before they can buy a tiny 60sq m apartment. In Paris, that number was 17 years and in London it was 14 years. More Coverage