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ResidentialTaryn ParisThu 21 Sep 23

Sydney Homes Remain Overvalued: UBS

The water, a ship, city and bridge are visible from the top floor of this apartment building by Terra Ferma partnered with Knox Group.

It’s official—Sydney’s property market is overvalued. 

According to the UBS Global Real Estate Bubble Index of 2023, the housing bubbles are deflating—real house prices fell by 5 per cent on average.

But the NSW capital remains far too expensive compared to its inhabitants’ incomes. The city chalked up 16th in the ranking of residential property markets across 25 cities around the world. 

The reality for aspiring homeowners now is that affordability is at its worst. 

AMP chief economist Shane Oliver said the widening gap between house prices and incomes was to blame. 

“At its core, housing affordability is determined by home prices, income levels and interest rates,” Oliver said. 

“Whichever way you cut it, housing affordability has deteriorated massively in recent decades.”

According to the 2023 Demographia Affordability Survey, the median multiple of house prices to income for major cities is 8.2 times in Australia, compared to 5 times in the UK.

In Sydney it’s 13.3 times the income. 

And there is more pain in the wings, according to Oliver, who said that mortgage interest payments as a share of household income would rise to record levels once the current interest rates fully washed through. 

The UBS analysis found that a skilled service worker had to work seven years in order to be able to afford to buy a 60sq m apartment near Sydney’s city centre. 

According to UBS, bubbles are linked to decoupling of prices from local incomes and rents, and imbalances in the real economy, including excessive lending and construction activity. 

Two cities, Zurich and Tokyo, remain in the bubble-risk category, down from nine cities in the previous year’s results. 

UBS reports that the Sydney housing market has been “very volatile” in recent years, moving in and out of the bubble risk category. 

The Reserve Bank of Australia’s aggressive rate hikes have more recently triggered a new sharp price correction. Inflation-adjusted prices are back to 2018 levels, according to UBS.

Sydney is ranked 16th in the Global Real Estate Bubble Index for this year, with about a third of global cities falling in the fair-value category, with the remainder either overvalued or within the risk zone. 

“After a brief period of weakness between 2018 and 2019, prices surged by almost 25 per cent cumulatively across 2020 and 2021,” the report said. 

“Amid robust rental growth and lower household leverage, imbalances have declined sharply. The market is classified at the lower end of the overvalued territory.”

Residentialdo not useAustraliaReal EstatePolicyPolicy
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Taryn Paris
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Article originally posted at: https://theurbandeveloper.com/articles/sydney-homes-remain-overvalued-ubs