Is Australian property the most overvalued in the world?

April 18, 2011

According to economic bible, The Economist, the Australian property market is the most overvalued in the world, closely followed by Hong Kong and France. The magazine’s most recent quarterly report stated Australian housing is over-priced by

56 percent, with house prices having risen 215 per cent since 1997, compared to 95 percent in the US. The report’s methodology compares the ratio of house prices to rents and found Australia figures are 56 per cent above the long-run average between 1975 and 2010. The ratio in Hong Kong is 54 percent followed by France at 48 percent.

There are however varying opinions on if and when this housing bubble will burst. Morgan Stanley global strategist Gerard Minack says it would take a serious economic shock to send house prices tumbling.

“The fact we have very expensive property makes Australia very vulnerable to any sort of economic shock,” he said.

“An example is what’s happening in Queensland where tourism numbers are down. It’s not macro economically significant for the entire country but we’re seeing acute distress in their property market because, without the constant income growth, they can’t sustain prices where they are.”

Christopher Joye, property market analyst and managing director of research group Rismark International, adds that the surge in house prices since the late 90s can be attributed to increased disposable income, a situation he says is not likely to change.

“Australian household disposable incomes have consistently outgrown Australian house prices over the last seven to eight years,” Joye said.

“The Australian housing market isn’t overvalued by 50 per cent. The house price to income ratio is in line with its average over the last decade.”

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