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Sydney ‘overvalued by 25 pc’

By Staff Reporter
22

The Sydney property market is currently significantly overvalued, but is still not in ‘bubble’ territory, according to a prominent property analyst.

Speaking about yesterday’s decision by the Reserve Bank of Australia (RBA) to leave the cash rate unchanged at 2.25 per cent – after having dropped it by 25 basis points from 2.5 per cent in February – Louis Christopher, managing director of SQM Research, said Sydney was continuing to outperform other markets and the central bank would be monitoring things closely.

He said the RBA’s statement made it clear that while the Sydney market may be hot, the other capital cities have put in a more varied performance, which should end speculation that Australia’s largest city is driving a housing bubble.

“We think [the statement by the RBA] will put to rest talk of a national housing bubble. The RBA doesn’t appear to be too concerned about national house prices and it is looking at the market on a national basis,” he said.

“While house prices may be overvalued nationally to some degree, we aren’t seeing the sort of valuations that we saw back in 2003 that were way more inflated relative to incomes and GDP.”

Mr Christopher did caution however, that people are still paying a significant premium for property in Sydney at the moment.

“Sydney house prices are probably overvalued by about 25 per cent, but much less than the 55 per cent premium that we saw back in 2003,” he said.

Mr Christopher continued that “except for Sydney and parts of Melbourne, the housing market is largely in check” and said the RBA will be monitoring far more than just the property market.

“Low interest rates have fuelled other asset markets such as equities and commercial property, so this may put a brake in downward moves. So too will rising interest rates in the US.

“But then again, it all depends on the Australian dollar. The one thing the RBA clearly doesn’t like is the Australian dollar, which remains above 'fundamental value', much to its consternation. The Australian dollar had a nice bounce [yesterday] against the Euro and Yen since the February rate cut. And it’s been steady against the US dollar. So the RBA’s focus will remain on our belligerent currency.”

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