According to the recently released UBS Global Real Estate Bubble Index data, Sydney has been identified to be sitting at fifth position after Vancouver, Munich, Stockholm and Toronto. The city has been said to be at risk of a bubble given the prices soaring ahead of the income growth. Sydney’s housing prices plunged in 2015 - 2016 but again soared in a short span of time, while the prices have risen over 10% in the last one year. This is in coherence with the latest note from Capital Economics, which stated that house prices in Sydney have been about 30% over their historical fair value. It was further revealed recently that half of the homes in Sydney are worth at least double the prices paid at the time of buying.


UBS Global Real Estate Bubble Index for last three years (Source: UBS)

Sydney has seen this rising price trend at the back of increasing number of migrants flocking into Sydney in the last one decade. Particularly, it has been understood that the population of Greater Sydney moved up 1.86% in 2015-16 which is above the 1.76% annual rate recorded over the last five years. The population has been on the rise since then. Further, the investment splurge by Chinese investors along with low interest rates and rising wealth supported the price rise in Sydney.

Given the scenario, it is now being speculated that a correction might take place in residential construction; and house prices might witness a growth at a slower pace given the interest rates while population keeps on moving up. UBS, in fact, has forecasted a house price growth between zero and 3% per cent in FY18. Thus, the overall indication looks to be a stooped towards a correction and not a burst of the housing bubble. While gravity might pull down the house prices a bit, the home building is expected to suffer a slowdown in the future. Overall, the steep jumps seen in house prices so far might fail to recur in the next few years. Further, the latest speech by the RBA Governor, Philip Lowe, is indicative of an interest rate hike in the coming years, and this is expected to bring down the prices in Sydney. Rest assured, this will take some time to shape up.

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