For many people, Sydney, Australia is an idyllic location for owning a piece of real estate. The Opera House, the harbour, the plethora of markets and the botanical gardens are just a few of the attractions of the region. However, prices in ‘The Emerald City’ have skyrocketed to an almost unaffordable level, leaving several property investors with little hope of being able to secure a place.
Australia has the third highest house price-to-income ratio in the world, only preceded by Canada and Belgium. And house values in Sydney have increased by nearly 60 percent since 2009, according to data from property research group, RP Data.
The lack of new housing and recent interest rate cuts have no doubt had a strong impact on the housing market and are partially to blame for the recent surge in prices. The median price for a detached house in Sydney is now 13 times the average salary, and has risen to over A$1 million (£504,000).
Sydney has also seen a recent influx of foreign investors, with the city’s prime properties in and around the harbour attracting particular interest. Chinese investors are said to have been dominating housing auctions in various parts of the city, but no exact figures have been collected to ascertain how much is being invested in Australian property from overseas buyers. However, the federal government has taken this matter to hand, and any foreign investors are now charged an upfront fee if they invest in residential housing.
Although the Australian banking industry has denied there is currently a housing bubble, many people disagree and feel that if interest rates start to climb, the supposed bubble could burst. However, St George Bank senior economist Janu Chan, believes otherwise. “Some buyers may be over-exposed if the Reserve Bank of Australia does raise rates but we expect rates to rise slowly, allowing an exit for those who need to, before rates bite”, she said.
Despite the rising house prices, Sydney is still proving to be attractive for many people investing in property. Louis Christopher, managing director of SQM Research, says that Sydney properties are still more affordable now than they were in 2003. "Back in December 2003, on our valuation, the market was 55 per cent over fair market value“, he commented. Today, he says, it is only 25 percent over. So while it is still considered overpriced, it hasn’t reached the heights of 2003’s market.
The Reserve Bank of Australia (RBA) has warned of the risk of a significant drop in house prices, though. However, so far the warnings have done little to decrease activity in the Australian property market. Least of all in Sydney.