18 Nov 2013

Regulators worry about Sydney property bubble

7:07 am on 18 November 2013

Signs of a property bubble in Sydney are prompting expressions of concern by Australian regulators.

After a long flat period, there have been record listing numbers for residential property in Sydney in recent weeks. Record sales volumes and house prices have also been recorded.

Interest rates are at historic lows, confidence has returned and investors are gearing into property through their self-managed superannuation funds.

With median Sydney prices now well above $700,000 and required deposits shrinking, regulators are getting worried.

Maximum loan to valuation ratios are getting up above 95% and there is speculation that Australia may follow New Zealand's example and limit the number of low deposit loans banks can approve.

The Reserve Bank of Australia is keeping interest rates low to try to deflate the high dollar, amid concerns about the currency's impact on the economy. However, in doing so it risks inflating the property bubble.

A lower dollar is needed to encourage other industries to take over the baton as the mining boom ends.

There has been some respite in the past week, with the prospect of the United States Federal Reserve tapering back its easy credit programme dragging the Australian dollar down to eight-week lows.

However, the RBA will want it to correct further yet so interest rates do not have to bear all the burden.