A fresh round of cheap credit is further inflating Sydney’s investor-driven property prices.
HSBC economists Paul Bloxham and Daniel Smith used a research note to forecast that record-low interest rates would continue driving strong growth in the Sydney market.
“We see Sydney prices rising by 9 to 10 per cent in 2015 and expect that, when rates do eventually rise, there is now a high risk that Sydney will see price falls,” the economists said.
“Although we do not see a national housing bubble, we believe that growth in Sydney housing prices is currently running at an unsustainable pace and that any further growth is likely to be met by housing price declines in future years, when interest rates do begin to rise,” they said.
The surge in Sydney house prices is signalled by investors claiming a record-high share of new loan approvals in NSW, according to the economists.
“The high involvement of investors suggests there is a speculative dynamic in the Sydney market that may be worrisome,” they said.
“Investors are typically seeking capital gains, rather than rental yield, as Australia’s tax system favours capital gains."
The economists said that investors tend to be lower-risk borrowers and are unlikely to be producing increased financial system risk.
“However, it does seem likely that increased investor activity is driving housing prices to rise faster than fundamental factors suggest they should in the Sydney market,” they said.