Sydney ‘at the lower end of the overvalued territory’: UBS

The latest iteration of the UBS Global Real Estate Bubble Index has noted a sharp decline in housing market imbalances the world over.

Analysis of the residential property prices in 25 major cities across the world saw real house prices across these cities fall by 5 per cent between mid-2022 and mid-2023.

While house prices have been “volatile” in Sydney, the city has held onto its “overvalued” status from last year – albeit at the lower end.

The report acknowledged the Sydney housing market saw a brief period of market weakness between 2018 and 2019, before “prices surged by almost 25 per cent cumulatively across 2020 and 2021”.

“Aggressive rate hikes by the Reserve Bank of Australia more recently triggered a new sharp price correction. Inflation-adjusted prices are back to 2018 levels,” the report continued.

Classifying the market at “the lower end of the overvalued territory”, UBS said that looking forward, further downside is limited, thanks to improving foreign demand.

“Amid robust rental growth and lower household leverage, imbalances have declined sharply,” the report reflected.

It’s joined in the overvalued category in 2023 by the likes of Miami, Geneva, Los Angeles, London, Stockholm, Paris, Toronto, Frankfurt, Munich, Hong Kong, Vancouver, Amsterdam and Tel Aviv.

The decrease in house prices globally means that there’s been a drastic reduction in the number of cities classified within the ‘bubble risk category’.

Back in 2022, nine cities were classified as at risk of their bubble bursting: Toronto, Frankfurt, Munich, Hong Kong, Vancouver, Amsterdam, Tel Aviv, Zurich and Tokyo.

Only two cities – Zurich and Tokyo – remain sitting in the ‘bubble risk category’ for 2023.

Reflecting on this year’s findings, the report’s authors said: “Low financing costs have been the lifeblood of global housing markets over the past decade, driving home prices to dizzying heights.”

“However, the abrupt end of the low interest rate environment has shaken the house of cards,” commented Claudio Saputelli, head Swiss and global real estate chief investment officer GWM, and Matthias Holzhey, senior real estate economist, chief investment officer GWM.

“On average of all cities, within the past year, inflation-adjusted home prices have seen the sharpest drop since the global financial crisis in 2008,” they conceded.

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