Most investors know that Australia doesn’t have one unified property market. Our capital city markets are driven by different demand and supply factors, as well as differing economic drivers, which means their characteristics, price point and the stages at which they are in the property cycle is not the same across all locations.
One factor in particular that notably differs across our various property markets is the level of affordability on offer- something which has become increasingly apparent with the recent run up in property prices across some capital cities. But what does this look like in practice, and what limitations does this place on buyers looking to invest across our different markets?
To help illustrate these differing levels of affordability, we compared what a buyer with a budget of $600,000 looking to purchase 15km from the CBD could have bought in Australia’s major property markets over the last few months.
Here’s what we found.
Sydney
Gladstone Street, Ryde
Sydney’s market began to rise in 2013 and has welcomed strong results in the years since with many investors having enjoyed success over this time. However, this has led to prices inflating considerably and Sydney’s median price hit $1,143,012 during the June quarter.
Sitting 15km north-west of the Sydney CBD in the suburb of Ryde and selling for $570,000 in July is a 68sqm, 2 bedroom, 1 bathroom apartment set in a group of 12. This apartment is an accurate reflection of what is available on the Sydney market at this price point.
The lower resilience of units is one negative aspect of entering the Sydney market at this price point, with CoreLogic reports showing that from March 31 to October 31, unit rents in Sydney fell 5.8% while houses only recorded a 1% fall. This fall is largely driven by the impact of the COVID-19 pandemic and the reduction of foreign students and overseas migrants entering the market.
Melbourne
Napier Street, Essendon
Melbourne’s median house price during the June quarter was $881,369, well above the national average despite recording a -3.5% slump due to the COVID-19 pandemic. This lower median price compared with Sydney’s market will see buyer’s gain slightly more land size for their investment budget.
Featuring a small courtyard and 75sqm of internal living space, this 2 bedroom, 1 bathroom villa in a small group of five sold for $580,000 in May.
Melbourne’s slightly more affordable property market allows investors to jump from an apartment to a villa, seeing them benefit from a higher land component.
Brisbane
Alexandra Close, Apsley
A median house price of $582,847 during the June quarter means a budget of $600,000 will begin to attract a lot more space and land for buyers wanting to invest in Brisbane. This increase in affordability could see buyers move out of the unit and apartment market and into the housing market, offering larger land content and greater lot size than alternative cities – features which could hold strong appeal for key demographics such as owner-occupiers.
Sold in April for $575,000 was a well presented two-storey family home on 492sqm of land in the suburb of Apsley. Featuring 4 bedrooms and 2 bathrooms, this house is indicative of the value, and also land content, that investors can begin to attain in some of Australia’s more affordable markets.
Perth
Abbey Street, Warwick
Offering one of the most affordable markets in Australia, buyers in Perth can achieve good value for money with a budget of $600,000. REIA’s housing affordability data highlights that Western Australia is the cheapest state in Australia to purchase property (June 2020), with only 24% of the average household income needed to meet loan repayments (compared to 42.3% and 36.8% in Sydney and Melbourne).
Sitting on a 711sqm corner block in the suburb of Warwick, this recently renovated 1970’s brick house has 4 bedrooms, 2 bathrooms and sold in April for $590,000. The value of this property, especially for an investor, lies in the land size on offer and the subdivision and development potential it brings with it.
Despite both the Perth and Brisbane markets offering value for money, there are still pricing and affordability differences between the two cities. Brisbane’s inner ring of suburbs is weighted towards the more expensive end of the market, meaning the land content buyers receive for a purchase of $600,000 will generally be lower than comparably distanced suburbs in Perth. With land value playing such an important role in a property’s long-term growth, the increased block size on offer within the Perth market should be an enticing prospect for investors.
The larger land component buyers can get for their budget in Perth is creating some great opportunities not just from a capital growth perspective, but also for investors seeking properties with development potential. Investors with a develop to hold strategy, in particular, have an opportunity to leverage the market’s affordability to secure a site at a lower budget and in closer proximity to the CBD, with the benefit of completing their development in improving rental and growth conditions.
Affordability presenting investors with opportunity
The lower entry point into the housing market in Perth and Brisbane brings with it the benefits of the long-term resilience offered by houses, as well as the capital growth and development potential afforded by larger land size. For investors with a lower budget or for those looking to diversify their portfolio and capture broader growth opportunities, Perth’s affordability is providing a potentially time-limited and lucrative window of opportunity for investors with the right property selection criteria to enter the market at a lower price point that may see them benefit from future market improvements and growth.
To speak to our team in more detail about the current opportunities in the Perth market, or for more insights into these market indicators, please feel free to get in touch or request a consultation via the following form.