It’s safe to say the most common question we’re asked at Blue Wealth is ‘Why aren’t you in Sydney?’. We led the pack into Sydney back in 2012 and the herd/stampede followed, the echo of which continues to be heard today.
Entering a market at the trough of a cycle, opportunity on the property clock, facilitates portfolio building by promoting equity growth as the market moves clockwise around the clock. It doesn’t take a degree in property economics to realise that the Sydney property market has long surpassed this point. Although the February rate cut may keep the clock ticking on Sydney in 2015, the affordability ceiling is fast approaching.
Before I go on, a brief aside on the Blue Wealth property clock: property markets, particularly on a city scale, are diverse. Take Melbourne as an example: Blue Wealth has identified sub regions within the city that exhibit ‘opportunity’ and ‘value’ in a macro market on the precipice of ‘danger’. The dominant force behind Melbourne’s strong recent performance, however, has been growth in detached dwellings. Apartment growth in Melbourne has a tendency to lag housing growth and what we’re seeing now is the apartment market playing ‘catch up’ to the housing market.
Back to Sydney. The figure below shows the year on year price growth for residential property in Sydney. Between 2012 and 2014, the median price for Sydney dwelling increased by 38.6 per cent, and moved from ‘6’ to ’12’ on the property clock! The volatile period between 2008 and 2011 was largely driven by reactionary monetary policy changes in response to the GFC, while a demand heavy imbalance has contributed to strong growth from 2012 onward.
Where to for Sydney?
With interest rates forecast to increase from 2016 onward, affordability will continue to be strained. Sydney’s recent history shows that house price booms can eventually take a toll on the whole economy. The city’s last property surge, which lifted the median house price by about 160 per cent between 1997 and 2003, left the city’s households the most indebted in the country. The aftermath slowed the city’s population growth and constrained state economic growth for several years. The data suggests Sydney will go through a period of correction similar to that which occurred between 2004 and 2009. The median price over that period remained stagnant, declining in real terms.