The gap between Sydney house prices and house prices in other major Australian cities is widening. Investors should recognise this.
Blogger: Michael Davoren, managing director and master franchise owner, RE/MAX Australia and New Zealand
What we are seeing in Sydney, like in other markets, is that the demand for property and a shortage of listing is driving prices up. The Sydney market has responded with an increase of approximately 10 per cent this year, and evidence points to an increasing demand for housing over the next two decades.
A significant gap in pricing between Sydney and other capital cities exists, and Sydney housing starts from a high base.
Based on July 2013 figures, RP DATA has the Sydney combined house and unit median price at $570,000, which is 16% higher than Melbourne, 15% higher than and 14% higher than Canberra.
Historically, once the gap reached between 30% and 40%, investors found better value in markets where rental demand and rents were as solid and the buy-in prices were lower.
A 15% to 20% rise is anticipated for Sydney in 2014, while the range for a rise in values across capitals excluding Sydney is a moderate four to seven per cent.
House values are rising at a faster pace in Sydney, Melbourne and Perth that in other capitals.
We are likely to see gaps in selling prices widen and a flow-on shift in investor focus to the more affordable Brisbane, Adelaide and Hobart markets.
Investors will start looking elsewhere – to Queensland, South Australia and Tasmania - to where they can get good return on their investment dollar while spending less up front.
I have a cautionary note. While the rental situation is strong in most markets, property investors must to do their research on the longevity of whichever property investment market they are buying in to.
About Michael Davoren
As managing director of RE/MAX Australia, Michael Davoren has been in real estate for over three decades and held senior management positions and directorships with major real estate groups in Australia and New Zealand.
Michael has also held leadership positions in the industry having been President of both the Real Estate Industry of Queensland and the Real Estate Industry of Australia.
He was an Executive Board member of the Chicago-based International Consortium of Real Estate Associations for five years.