Sydney has been known by many to be a rather unaffordable market, but new research indicates just how overpriced the market actually is, and how it compares to 21 other global cities.
According to The Economist’s new global cities house-price index, property prices may be reaching a turning point soon, as the average rate of house-price inflation across the 22 cities saw a slowdown to 4.7 per cent, down from 6.2 per cent.
The explanation behind this global trend? The index indicates three reasons:
- Less people are arriving to big global cities due to being priced out of the market.
- Governments have not been doing enough to expand supply.
- Monetary policy being loose since the last financial crisis has made mortgages cheap while also increasing property prices.
Despite population growth by an average of 12 per cent for the last 10 years for the 22 countries, a rise in demand has stemmed from foreign investors in Australia, coming particularly from China.
That rise in population growth is expected to slow or even shrink, data from the Economist Intelligence Unit indicated, and it is this fact, coupled with Australia increasing taxes for foreign investors, that provides further insight to the slowdown.
In order to determine whether a market is undervalued or overvalued, prices were compared with median household income, and if prices rise faster than household income, this indicated that markets could be unsustainable and overvalued as a result.
According to the index, Sydney was determined to be the eighth most overpriced global city by 50 per cent. The index also indicated house prices have grown by 64 per cent over the last 10 years, with 50 per cent accounting for the last five years.
Further, new builds have been nearly a fifth of Sydney’s total stock in the last three years.
[Related: House prices to fall by 15% by 2020]