Sydney ranks fourth among global cities most at risk of a housing bubble, recent research has revealed.
According to the UBS Global Real Estate Bubble Index for 2016, increasing supply and further tax measures to reduce foreign housing investments “may end the price boom rather abruptly” in Sydney.
The UBS Index, which is designed to track the risk of housing bubbles in global financial centres, found that Vancouver topped the index this year, and “bubble risk also seems eminent in London, Stockholm, Sydney, Munich and Hong Kong”.
Last year’s report, which listed Sydney as the third most at risk global city, behind London and Hong Kong, after identifying real estate prices as “overvalued".
This year’s report explained that in Sydney, real housing prices “peaked” in the second half of 2015 after an increase of 45 per cent since mid-2012, and since then prices have corrected by “a low single-digit”.
“The Australian residential market is influenced by a rapidly growing foreign demand (in particular, Chinese), which has tripled in value over the last three years,” the report said.
Overall, the report explained that house prices of the cities within the bubble risk zone have increased by almost 50 per cent on average since 2011, whereas prices have only risen by less than 15 per cent in other financial centres.
“This gap is out of proportion to differences in local economic growth and inflation rates,” the report said. “A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a rapid decline in house prices,” the report concluded.
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