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Sydney property market in bubble since December - UNSW Business School professor Glenn Otto
Topic Started: 8 Sep 2015, 04:22 PM (1,353 Views)
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Sydney property market in 'bubble territory' since December, says professor

The Sydney housing market has been in bubble territory since December 2014, according to new economic modelling, and there is no sign of a slowdown yet.

UNSW Business School professor Glenn Otto has examined the house price-to-rent ratio across all capital cities since 1984 to detect any explosive growth in asset prices.

"There's also some evidence we've got a bubble currently for Sydney since December 2014, but not for any other capital cities," Professor Otto told The Australian Financial Review, ahead of UNSW's Real Estate Symposium on Tuesday.

"Sydney and Perth both had episodes of bubbles and Sydney had a clear episode of bubble from December 2001 to June 2004."

Treasurer Joe Hockey has previously dismissed concerns about a housing bubble forming in Sydney, while Reserve Bank of Australia governor Glenn Stevens has described parts of Sydney's property market as "crazy".

Professor Otto said prices generally "wander along in a reasonably random fashion, but there are episodes where you have a really high, really rapid explosive growth in house prices".

"This definition picks up a house price bubble based on the rate of the growth of house prices in relation to rent."

He said by measuring how fast the asset price grows, the modelling detects any "short-term, explosive behaviour" on the part of buyers.

"The rapid growth suggests they are expecting return over and above the normal rate of return, which compensates for the uncertainty that the bubble will burst. It also suggests buyers don't do due diligence on what the place might be worth.

"Another advantage of the technique is it potentially gives you an early warning signal and you can see the beginning of a bubble, so if you're the central bank and this is something you're concerned about, at least you know you're in the bubble territory."

The latest data from CBRE also suggests foreign investment may be creating a "two-tiered" residential market in Melbourne, where the price in the new residential property market is significantly above the price in the resale market due to foreign investment.

CBRE data shows the price for a new Melbourne residential property is more than 6 per cent higher than the price for a Melbourne property in the resale market.

The two-tier property market phenomenon is expected to get worse as the lower Australian dollar brings more foreign investment into Sydney and Melbourne housing markets.

Read more: http://www.afr.com/news/sydney-property-market-in-bubble-territory-since-december-20150907-gjgwe7
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