The Sydney housing market could be in bubble territory, according to UBS’ latest Global Real Estate Bubble Index. The report, which analyses the risk of housing bubbles in global financial centres, ranked Sydney as the fifth riskiest housing market, just below Vancouver and ahead of London.
“Sydney’s housing market has been overheating since the city became a target for Chinese investors several years ago,” the UBS report said. “Low interest rates, rising wealth and exuberant expectations also buoyed local demand. So valuations soared and pushed the market into bubble risk zone.”
While Sydney clearly isn’t in the mature stage of its property cycle, Michael Yardney, CEO of Metropole Property Strategists, doesn’t see the bubble bursting any time soon.
“UBS say that price bubbles are a regularly recurring phenomenon in property markets, and of course that’s true,” Yardney said. “To UBS, the term ‘bubble’ refers to a ‘substantial and sustained mispricing of an asset’. But then they go on to clarify: ‘the existence of which cannot be proved unless it bursts.’”
“In other words, it looks like a bubble, it smells like a bubble, we think it’s a bubble, but we won’t really know for sure until it bursts and we don’t know if or when that will occur,” he added.
Recent data from CoreLogic makes it clear that house price growth has begun to slow in Sydney and Melbourne. Nationally, dwelling values remained flat in August, led by a slowdown in Sydney.
And while homebuyers are staying put rather than upgrading, and auction clearance rates have been declining, for a property market to crash “you need desperate sellers willing to give away their properties at fire sale prices and no one willing to buy them,” Yardney said.
According to George Raptis, director at Metropole Property Strategists, for the Sydney property market to crash, one or more of the following are needed:
- A major economic depression – This is highly unlikely to occur in Australia any time soon.
- Massive unemployment – Sydney has a relatively strong economy and the job market is healthy.
- Exceedingly high interest rates – While some analysts say the Reserve Bank will start raising interest rates next year, “exceedingly high interests” are once again not on the horizon.
- An oversupply of property and no buyers – There’s currently a massive shortage of housing in the city.
“It’s true that Sydney property prices are high but that doesn’t mean they’re going to crash, which seems to be what many potential buyers who missed out over the past few years are secretly hoping for,” Raptis said.
“The economic fundamentals of Sydney are still strong with significant planned infrastructure spending, so the chances of a ‘bust’ seem minimal at best and historically have actually never happened in any of our major capital cities.”