Sydney is facing a 'housing bubble' after a surge in prices in the past five years, according to a UBS Group report.
The UBS Global Real Estate Bubble Index report analysed residential property prices in 18 'financial centre' cities around the world, with Vancouver, London and Stockholm topping the list and Sydney coming in fourth.
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According to the report, Sydney house prices have risen 45 per cent since 2012, with rapidly growing demand from foreign investors driving prices higher.
Other drivers for the price rises for the cities most at risk are low interest rates and bullish expectations, the report said.
However, UBS notes the Sydney price boom could come to an 'abrupt' end due to increasing supply and further tax measures to reduce foreign housing investments.
The UBS warning adds to a chorus of warnings regarding Australia's property market with the OECD, a UK economist and real estate insiders among those voicing concern this year,
According to the UBS report, house prices in the near-bubble cities have increased on average by almost 50 per cent since 2011, compared with less than 15 per cent in other financial centres, UBS said.
"A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a rapid decline in house prices," UBS said.
"Investors in overvalued markets should not expect real price appreciation in the medium to long run."
Vancouver's ranking soared to first from fourth place in 2015. Housing prices in the Canadian city have doubled in the past decade, prompting an outcry from local families struggling to afford homes that now chew up 90 per cent of average before-tax income.
The typical detached single-family house in August was C$1.6 million ($1.6 million), according to the Real Estate Board of Greater Vancouver. The provincial government in August imposed a 15 per cent tax on foreign buyers in an attempt to cool prices.
UBS said all European cities are overvalued after low interest rates fuelled an overheating of demand for urban residential properties. Amsterdam, Zurich, Paris and Geneva also ranked on its list of cities that have seen prices rise past long-term norms.
Chicago was at the bottom of the list of financial centre rankings, with prices that have failed to recover from the recession.
The survey didn't include mainland China, where major cities have been experiencing a runaway boom, due to the lack of consistent data, a UBS spokesman said in an e-mail.
Across most global cities, buying a 60 square-metre apartment is out of reach for the bulk of people earning an average annual income in the highly skilled service sector, UBS said.
Bloomberg, wires