Sydney At Risk Of ‘Housing Bubble,’ Says Report

The Property Observer featured a recent report from UBS Wealth Management, stating that Sydney is at the risk of a “housing bubble.”

“Housing bubble risk zones” are cities in which property prices within that zone have increased by 50 per cent on average since 2011. There’s been a risk of the bubble popping since the 1970s because of the real estate boom in Australia, and it continues to overheat to this day.

What could be the possible scenarios for Sydney?

1. Prices will only go higher.

According to the UBS report, Sydney’s housing market has been overheating since the city became a target for foreign investors several years ago.

The report noted that the continuous supply and sustained demand from China has produced an ideal setting for excesses in house prices.

Sydney housing prices peaked in the second half of 2015 after an increase of 45% since mid-2012.

2. Price boom can end rather abruptly.

As mentioned above, one of the biggest drivers of the Australian residential market is the growing foreign demand (in particular, Chinese), which has tripled in value over the last three years. However, oversupply and further tax measures to reduce foreign housing investments may end the price boom rather abruptly.

The report warned that 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.

3. Properties can become overvalued.

Sydney, like all the other cities in the bubble risk zones, has excessively low interest rates, which are not consistent with the robust performance of the real economy, the report stated.

Investing in tangible assets remains popular because monetary policy cannot accommodate the macroeconomic differences between the cities. This can lead to properties becoming all the more overvalued.

However, we cannot know for certain when and for how long will a correction occur. The report said the situation is nevertheless fragile for housing markets.

At this time where overheating in the market is a real possibility, you want to be doubly sure that you do not pay too much for your next property. Get a buyers agent who is experienced in your local area to assist you. If you are looking for a buyers agent in Sydney’s eastern suburbs, then please call me for a confidential chat.

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