Australia ranks HIGH on global property risk list.

Australia is one of the most likely countries in the world to clock property price falls, a new ranking shows, after prices boomed over the past two years.

Property prices are high compared to rents and incomes, the Bloomberg Economics research found, although local experts caution prices will not necessarily drop far enough to get back in line with fundamentals.

Australia ranked fourth in the OECD for the risk of a property price correction, behind New Zealand in first place and just ahead of Canada in fifth, two other countries where property markets have been hot for years.

Central banks around the world, including Australia, cut interest rates to support economies during the pandemic, allowing buyers to borrow more and pushing property prices higher.

As economies recover, interest rates are going up and property markets are starting to slow.

In Australia, the largest cities are driving the downturn. Sydney home values are 1.4 per cent lower than three months ago, while Melbourne is down 0.8 per cent over the last quarter, on CoreLogic data.

“The pandemic unleashed a massive property boom, not just in Australia but globally,” AMP Capital chief economist Dr Shane Oliver said.

“House prices surged relative to rents and incomes … Now what’s happening is it’s all reversing – the ultra-low rates we saw, which underpinned much higher property prices, are now in the process of reversing.”