According to a new data released by the Swiss-based UBS group, Australia’s largest city has made it to the list of the most overpriced property in the world.

Global Real Estate Bubble Index, which traced the fundamental valuation of housing markets, showed that Sydney has gone up to become the third most overvalued city which could face a potential housing bubble, following London and Hong Kong.

“Only London and Hong Kong are within the “bubble-risk” zone,” the index data showed. However, Sydney has greater chances of facing a high risk of a “large price correction” in days to come.

Apart from London, Hong Kong and Sydney, Vancouver, San Francisco and Amsterdam has made it to the list. Since 1998, property prices in many global cities have skyrocketed in real terms, the report said. “On average, they are higher than before the 2007-08 financial crisis,” it added.

The Index report showed that salary increment and rentals in Sydney have remained flat, whereas house prices have surged almost 30 percent since 2012. According to the Domain group, the company believes that toughening of the regulations and the economic downturn in both Australia and China could prove to be a catalyst in bringing about a moderate price correction. In addition, the prices were influenced by strong Asian demand.

"A mix of optimistic expectations, favourable economic fundamentals and capital inflows from abroad has caused valuations to soar in certain cities in recent years. Loose monetary policy has prevented a normalisation of housing markets and encouraged local bubble risks to grow,” said Claudio Saputelli, Head Global Real Estate in UBS CIO WM.

The report also forecasted that Sydney comes eighth on the list, when the house price ratio is compared to the annual rent of the city, which is the number of annual rents required to purchase a flat of the same size. The company stated that if transformation in the macroeconomic momentum or in the investor’s activity or supply increases majorly then property prices could decline.

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