Real estate is a tale of two cities
Australian property is a two-city scenario - there's Sydney and Melbourne, and then there's rest of the country. Sydney and Melbourne property prices have had an astronomical rise over the past 12 months, while smaller cities such as Canberra, Darwin, Brisbane and Perth have seen smaller increases, remained flat or fallen.
Australian property is a two-city scenario - there's Sydney and Melbourne, and then there's rest of the country.
Sydney and Melbourne property prices have had an astronomical rise over the past 12 months, while smaller cities such as Canberra, Darwin, Brisbane and Perth have seen smaller increases, remained flat or fallen. Property values in Australia as a whole rose a modest 6.8 per cent last year, according to Knight Frank. But prices in Sydney soared by 16.8 per cent in the year to March 2015. Meanwhile, Melbourne's house prices grew 8.7 per cent.
Seen from the other side of the coin, recent data from Demographia, which measures living affordability, ranks Sydney and Melbourne among the world's 10 least affordable markets - more expensive than London, New York and Tokyo.
Experts say even if price growth in these two cities starts to slow, prices will still rise albeit at a more gradual pace.
"The broad view is that Sydney particularly has peaked, given the large price rise in the past three years," says Shayne Harris, head of Savills Australia. "But auction clearance rates still remain above 80 per cent week in, week out, and while this is the case, price growth will continue, albeit at lower levels."
Harris says Melbourne has a stronger supply chain than Sydney, which will keep price growth more moderate and sustainable.
Campbell Davidson, managing partner of the Sydney office at law firm Squire Patton Boggs, agrees that Sydney prices will continue to rise, albeit at lower levels.
"During 2015 and 2016, Sydney and, to a lesser extent, Melbourne will continue to rise but at slower rates," he predicts. "This continued growth will be fuelled by low interest rates and a lower Australian dollar which makes Australian property more attractive to foreign buyers. Prices in other cities are likely to remain flat or fall, particularly in Perth, as the mining boom subsides."
So how are prices in these two cities continuing to defy gravity? Experts point to a supply shortage of property against population growth which will keep lifting prices. Sydney gained a record 84,230 people in 2013 and 2014, and the government expects Sydney's population to hit 5 million by the end of this year. The number of households in Sydney, at 1.7 million, is predicted to increase by half again over the next two decades, so it would take more than 40,000 new homes a year just to keep pace.
Melbourne is expected to overtake Sydney by 2040 to become Australia's biggest city, according to the country's bureau of statistics. It had the largest population growth of all capitals in the last financial year, increasing by 95,700 people - or 1,800 people a week - to reach 4.4 million.
There are other factors contributing to the flow of new arrivals. In 2012, Australia introduced the Significant Investor Visa which has seen hundreds of foreign purchasers in the prime residential market. And from the first of July this year, the government will be offering a speedy 12-month application for permanent residency for those meeting an A$15 million (HK$84.92 million) threshold under the Premium Investor Visa.
Steady business confidence, a weaker Australian dollar and the low interest rate environment have helped to drive sales. Experts say interest rates are unlikely to rise soon, after the Reserve Bank of Australia cut rates to an all-time low of 2 per cent to stimulate economic growth amid low inflation.
There are some who say that would-be buyers should look outside of Sydney and Melbourne to get better investment value. While house prices in Sydney and Melbourne have been steadily climbing, analysis conducted by three university professors - Ronald Ratti from Western Sydney, Abbas Valadkhani of Swinburne and Greg Costello of Curtin - shows that house prices in each location will start to dip. According to their review for the Economic Record, house prices in Melbourne are predicted to fall by 9 per cent whereas prices in Sydney would "continue to rise until the end of 2015, then start plateauing". Joylene Hay at migration agent True Blue Migration believes that ahead of a possible fall, buyers should look outside of the top two cities.
"It's important that property hunters dig a little deeper into the raw data in order to identify regional peaks and troughs," she says. The past couple of years have seen an increase in the popularity of cities such as Perth and Brisbane, which has led to further investment by the local governments to improve infrastructure and provide more housing options, Hay adds.
"If the latest research is to be believed, it seems we've finally reached a tipping point that will see property prices in Sydney and Melbourne take a nosedive. How the housing market will look in 12-months' time is difficult to predict with too much confidence."