Sydney has the fourth riskiest housing market in the world following a sharp jump in prices in recent years, according to a report by investment bank UBS.
Sydney's real housing prices peaked in the second half of 2015 after jumping 45 per cent since mid-2012, the UBS Global Real Estate Bubble Index has found.
Since 2012 price falls have only been "low single-digit", UBS 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," UBS said in the report.
Rising housing supply and further tax measures to cut foreign housing investments could end the price boom rather "abruptly", UBS warned.
However Nerida Conisbee, chief economist with real estate advertising company REA Group, disputed the findings.
“There's no doubt that Sydney's unaffordable, it is the second most unaffordable city in the world after Hong Kong, so affordability is an issue. It's really a problem for a lot of people getting into the market, particularly first home buyers. But I don't think we're in a situation where a bubble is occurring.”
Ms Conisbee said there are three conditions necessary for a bubble to pop.
“The first is the economy goes into recession, we have really bad economic conditions. The second is we have too little demand for housing. Right now on our site we've never seen such high demand conditions in Sydney in particular. And the third condition prices could drop dramatically is we have too much supply. Certainly in Sydney we're not seeing too high levels of supply. Supply levels are 30 per cent down on what we've seen in Melbourne and prices still remain high, rents still remain high. Unless we see significant changes to those conditions I really can't see prices dropping dramatically.”
And prices are unlikely to drop given the RBA's record low interest rates and demand for Australian property, she said.
“We are in a low interest rate environment rate globally and interest rates are meant to stay low for a very long period - that's not surprising when you have a look at the places we're seeing a drop in prices.
"London is seeing a decline and that's primarily on what happened on the back of Brexit, Vancouver similarly is seeing a decline, but they put up quite significant taxes on foreign buyers," Ms Conisbee said.
“We have limited supply, we've got lots of demand, price growth is continuing and we also have that low interest rate environment.
"So the conditions right now would suggest that, at least until the end of the year, we're going to see price growth. Whether we'll see stabilisation next year will remain to be seen but right now there's nothing to suggest we're going to see a rapid decline in pricing.”
Vancouver, Canada, topped the bubble index, followed by London and Swedish capital Stockholm.
With AAP
