Sydney among world leaders for housing bubble risk

by Phil McCarroll29 Sep 2016
Sydney is among the world’s cities most at risk of a housing bubble according to research from global investment bank UBS.

According to UBS’ latest Global Real Estate Bubble Index, Sydney’s score of 1.7 makes it the fourth most at risk city in terms of a housing bubble. UBS classifies cities with an index score of 1.5 or more to be at bubble risk.

The UBS index puts Vancouver as the world’s most at risk city with a score of 2.14, followed by London at 2.06 and Stockholm at 1.92.

Munich (1.59) and Hong Kong (1.52) are also considered to be at risk of a housing bubble.

While Sydney has been one of Australia’s strongest property markets in recent years, UBS said a combination of oversupply and new tax arrangements have increased the risk level in the market in recent years.

“Real housing prices peaked in the second half of 2015 after an increase of 45% since mid-2012. Since then, prices have corrected by a low single-digit,” the UBS report said.

“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. Increasing supply and further tax measures to reduce foreign housing investments may end the price boom rather abruptly,” the report said.

According to UBS, foreign buyer demand, along with low interest rates, are common threads among all markets considered to be at risk of a bubble.  

“What these cities have in common are excessively low interest rates, which are not consistent with the robust performance of the real economy. This is illustrated by the Eurozone, where monetary policy cannot accommodate the macroeconomic differences between the countries,” UBS global real estate head Claudio Saputelli and Matthias Holzhey, head of Swiss real estate investments, said.

“Yet other countries such as Australia, Canada and the UK are also keeping their interest rates artificially low. When combined with rigid supply as well as sustained demand from China, this has produced an ideal setting for excesses in house prices,” Saputelli and Holzhey said.