NSW Property Investment Report – Is Sydney The Ugly Stepchild?

ugly houses smith mansion

via houselogic.com

Sydney’s property prices relative to residents’ earning power makes for startling reading, but how will this affect the market?

After being bandied about as the golden child of 2011’s property markets, Sydney has more recently been acting the ugly stepchild – and no one wants to pay for the babysitting.

The story of its property markets of late has been one of mounting affordability concerns, as the gap widens between property prices and average incomes. This has prompted a situation where economists fear that a correction may be underway as high prices push buyers out of the market.

“[The] issue comes back to affordability,” says Residex CEO John Edwards. “There remains a housing need and shortage but house and land packages are not affordable.”

Residex estimates that it now takes around 52% of after-tax income to repay a median-valued house in Sydney, assuming a 20% deposit was put down. Edwards says that this may be partly the reason for his company’s January statistics pointing to a drop in Sydney median house prices. Values fell by -1.18% over the month, -1.31% over the quarter and -3.45% over the year.

By comparison, the unit market has fared better and Edwards believes that affordability could be playing a part once more. Though January unit prices saw negative growth with a monthly median price change of -0.68%, the annual growth remains positive at 2.11%.

“I am concerned that the public will not recognise the potential issue that may be developing in Sydney’s house and land market due to affordability issues,” says Edwards. “The result may be that people simply read the press and believe they should be investing in houses because they are given the impression that the worst is over.”

Edwards advises investors to compare the performance of houses and units separately, rather than falling into the trap of looking at the entire market as two parts of a whole. “Housing markets and unit markets grow at different rates, during different periods of time and I cannot stress enough the importance of reviewing these markets separately. While one market produces good growth, the other may be in decline.”

He adds that property investors who plan to target Sydney would do well to avoid houses and focus on units. “At this stage, I think it would be sensible to take care and avoid the house and land market unless you are buying at bargain basement prices. The best investment class in Sydney property at this point in time, in my opinion, is established, older-style units.”

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