Australia's property market is approaching the bubble extremes seen a decade ago, an analyst told CNBC, after the Reserve Bank of Australia (RBA) warned this week that the market looks 'unbalanced'.
"There was an intense bubble in the property market a decade ago. There were property 'spruikers' out there encouraging people to buy five properties at a time – everyone was buying property magazines and all the top rated shows on TV were property related," Shane Oliver, head of investment strategy and chief economist at AMP Capital, told CNBC.
"We haven't quite returned to the extremes we had back then but we're getting close and that's why the RBA is getting concerned," he said. "Danger signs are emerging."
A low interest rate environment and strong price competition among lenders have led to a surge in investment property, raising the risk of a repricing, the RBA said in its Financial Stability Review on Wednesday.
National home prices rose an annualized 16.8 percent in the three months to August after a cooler period in the first half of the year. Meanwhile, prices in Sydney and Melbourne rose 16 and 11 percent, respectively, over the past 12 months according to RP data.
As a result, the RBA said it is considering measures to cool property investment that could include macro-prudential controls or credit restrictions designed to reinforce sound lending practices.
Fears of overheating in Australia's property market have occurred on and off since the turn of the century, but the period between 2003 and 2004 was most worrying, Oliver said.
Australian house prices were overvalued by as much as 51.8 percent amid low interest rates, high incomes and strong demand from foreign investors, according to the Organization for Economic Co-operation and Development.