The Reserve Bank of Australia has advised home buyers to be cautious about the rise of property prices and investment in Sydney.

In NSW, property investment approvals are now responsible for about 40% of the total value of loan approvals, the RBA said in its Financial Stability Review.

“It is important that those purchasing property maintain realistic expectations of future dwelling price growth,” the RBA said.

 “Long-run future growth in dwelling prices might be expected to be more in line with income growth.”

The RBA also recognised the growth of self-managed superannuation funds which they claim could be a “new source of demand that could potentially exacerbate property price cycles”.

But they acknowledged that even though overall SMSF lending has grown in recent years, it still remains only a relatively small proportion of bank lending. 

They said that if the property market overheats and the economy underperforms, it would be more difficult to make further cuts to interest rates.