Australia Home to Fifth Most Overvalued Property Market 1

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Wednesday, May 21st, 2014
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A new report claims that Australia has one of the most overvalued property markets amongst OECD nations.

The report, released by Knight Frank Asia Pacific, found that Australia’s surging home prices have left its property market the fifth most overvalued out of a total of 27 countries monitored.

According to the Knight Frank Global Opportunities Report Australia’s home prices have been rising well in advance of incomes and rents, fitting the very definition of an overvalued property market. The report estimates that the price-to-income ratio of Australian homes is currently at just above 20 per cent, while its price-to-rent ratio is approaching 40 per cent.

Only four countries beat out Australia in terms of overvalued property, with Norway, Canada, Belgium and New Zealand all seeing a more rapid increase in housing prices relative to incomes and rents.

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The report further points out that prices in all of the five most overvalued national property markets are still on an upward trajectory, leaving them at acute risk of a correction should mortgage rates rise or income levels take a hit. This is particularly the case in Belgium, Norway and Canada, none of which suffered the price declines which hit most other OECD nation in the wake of the Global Financial Crisis.

Australia’s mainstream property prices continued to grow during the last quarter, though at a reduced rate compared to the preceding year, on the back of reduced interest rates and greater availability of credit.

The United States, Austria, Iceland, Italy, Luxembourg and South Korea were all found to have aptly valued markets, with prices and rents in these countries now more or less in proportion. Countries with undervalued property markets included Ireland, Portugal, Germany, Greece and Japan.

For economic heavyweights Germany and Japan, the absence of the double-digit price growth experienced by many other industrialised countries at the start of last decade has left its property market significantly undervalued.

Housing in the Mediterranean countries of Greece, Spain and Portugal continue to be severely hampered by the European Debt Crisis, with prices still on the decline in all three markets.

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  1. David Chandler

    Great article.Remove the outlyers and ask why? High priced economies such as Australia have high wages and falling productivity compared to peers. Digging holes and pumping gas will not sustain Australia's high cost of everything. Its no good talking of housing bubbles as the changes that will drive underlying asset values will be how the economy holds up competitively over time versus peers and emerging economic competitors. Germany is a good example, but it has big differences. They are in a northern hemisphere setting and Australia's are quite different.
    The situation looks bleak for construction which is at least 20% overpriced. Construction costs affect the cost of all Australia's traded goods and services, And jobs. But it has no plan