THE HOUSING MARKET IN SYDNEY.
Should a home be considered an investment? It’s a serious question asked by many Sydney homebuyers, and with the current market reflecting record high prices and ongoing growth, it’s a good one. The median asking price for a home in Sydney has risen to $1.1 million and hasn’t shown any signs of slowing as demand remains equally high.
In fact, the asking price for homes in Sydney is up by 12% just in the last year and 25-29% over the last three years according to RP Data. If you’re trying to get the most out of your investment, few if any asset investments can match the return on investment you’d be getting from Sydney property.
In a recent article in the Sydney Morning Herald, the Reserve Bank’s recent research on home values show that Australian house prices may actually be undervalued by as much as 30 per cent. While there have been rumblings of a property bubble, the fact remains that “owning a house costs 30 per cent less than renting”, according to Dr Peter Tulip.
While Dr Tulip’s comments will likely rile many, namely first time homeowners, the reality is that there is some method to the additional madness being offered here. In his studies the researches found that “The annual cost of owning a home bought in April was likely to be 2.7 per cent of its value. The annual cost of renting the same home was likely to be 3.9 per cent.” Which is not so much an undervaluation but in fact an analytical observation showing the cost benefit analysis in favour of home ownership today.
HOW DOES HOUSING COMPARE IN SYDNEY?
With this kind of return, how does Sydney’s housing market compare to so many other investments that the typical investor has to choose from? Whether you are preparing to buy a home for your family or are looking for a property you can invest in for the coming years, there are a number of factors to consider.
Australian shares over the last 10 years have returned 9.1% while bonds have returned 6.4% (according to AMP Capital Investors). Cash alone has had a 5.4% return in that same time period, and while housing saw a dip following the collapse of Lehman Brothers and the start of the Global Financial Crisis in 2008, the recent boom in Sydney is far outperforming all of these other investments.
Another thing to consider is volatility. Shares have shown a strong performance in that 10 year period, but they have shifted wildly in that same time. Between November of 2007 and March of 2009, for example, there was a drop off of 55% in value for Australian share values. Housing may have dropped during that same period, but not nearly as much and it has long since recovered and improved.
Investing in Housing in the Current Sydney Market
With the Real Estate Institute of Australia forecasting a continued 9% growth in housing in Sydney over the next three years and the consistent demand for homes and rentals in Sydney and the surrounding area, this isn’t likely to change any time soon.
Home building has been far below demand for a long time and while it has done much to catch up in recent years, the lack of available space surrounding Sydney will keep the supply below demand for some time to come, even as prices increase. If you are looking for a smart, strong-performing asset investment in the current economic climate, considering Sydney’s property market will rank highly for some time to come.