It's a shame you can't hedge your bets on property by hiving off a bedroom or two, and selling them, while keeping the lounge and kitchen and back yard.
I think property valuations in Syd/Melb seem pretty stretched at the moment. Certainly by comparison with international benchmarks, as well as regional Austrlaia. Although unlike tulipmania and the dot com craziness, your classic textbook bubbles, there are certain types of properties (inner city detached houses) that they are simply not creating anymore - so in some sense high valuations are justified due to demand and very limited supply.
If you sell, will you be buying another property eventually? Somewhere else in Australia? Is the the CGT exemption for your PPOR something that you will want to take advantage of again?
Maybe do a pros and cons analysis of better places to put your capital? For example, taking diversified index funds as a possibility, see if it brings about a better outcome for your circumstances. By 'better' I mean potentially better performing, more liquid/flexible, more tax effective or any combination of the three.
Zooming out again, I think if you bought property before this latest upswing in prices, and you're happy to quit while you're ahead and cash in your chips, and then say park it in an index fund which on average would delivered average annualised returns of 7%, and that sets you up, then why not? Or split the proceeds and buy a smaller cheaper house somewhere and part the rest in an index and live off that? You've got options.