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August 27, 2015

The alternative to Sydney property investment


Quite simply, affordability looks at the average person’s ability to meet his or her monthly mortgage repayment.

There are three main determining factors when it comes to affordability – average house prices, interest rates and household income.

Human nature drives the need for the biggest and best house possible. Whether close to the city, or close to water, we are constantly striving for more.

If wages increase or interest rates are lowered, property becomes more affordable. However, the general response to increased wages and lower interest rates is to strive for a bigger, better house, pushing property prices even higher.

Take an average Sydney homebuyer for example:

Source: Fairfax APM

Sydney’s current average Loan to Value Ratio (LVR) sits at 85 per cent, which means that the household above is currently paying approximately $4,400 per month to service their mortgage. They’re therefore spending more than half of their post-tax income on property. If property prices continue to rise or interest rates increase, they’ll need to consider whether there’s enough left over to cover the living costs of everyday life. It certainly only leaves slim margins in this case, without even considering further property investment.

Let’s take a look back and rewind the clock; back to 2013 before the (so-called) recent property “boom”:

Source: RP Data

Using those figures, Sydney residents were only paying around 30 per cent of their household income on their mortgage. There were wider margins for spending and further property investment.

The scenario above suggests that the property “boom” Sydney is currently experiencing is more of a correction, one predicted by many at the time. It’s highly likely that if interest rates are to remain the same or even increase, Sydney will experience a softening of property value in the next 12 months. Property prices in the harbour city cannot get any higher than they are now. For house prices to continue increasing at the current rate, either wages will have to increase substantially or interest rates will have to decrease.

It’s clearly a tough market for all property buyers, so for those still looking to invest and grow their property portfolio, it’s time to consider looking outside of Sydney.

Is southeast Queensland that haven?

These are the facts:


  • is Australia’s third largest city with more than 2,300,000 residents
  • is Australia’s fastest growing city
  • has an average house price of $505,000
  • is ranked sixth when indexed against the other Australian capital cities (below both Darwin and Canberra)

Gold Coast…

  • is the largest non-capital city in the country with more than 600,000 residents.
  • will host the 2018 Commonwealth Games
  • has an average house price of $530,000.

When it comes to capital city median house prices, Brisbane sits at sixth place. Property prices in the region failed to recover in the same manner as Sydney, Melbourne and Perth post-GFC by dropping even lower due to two years of devastating floods.

Jordan Navybox

Jordan Navybox

It’s an anomaly that’s likely to be corrected by above-trend market growth in the short- to medium-term, making it the ideal time for investors to capitalise on the affordable property prices.

For a lower initial investment than they would be considering in Sydney (less than half!), clever investors that turn to parts of southeast Queensland can hope to see an increase of nearly 15-20 per cent year on year over the next three years. Sydney investors, while still making a solid “long-term” investment, are unlikely to see any short- to medium-term results for the next three to five years.

Am I suggesting that if you “throw a dart” at Queensland you’ll make money? No, I’m not – although that’s nearly the case. There are still fundamental ideals for investing in property that apply to Queensland and as with every investment, property or not, strong diligence must be taken in your research.

About Jordan Navybox

Jordan Navybox is a buyers' agent for Cohen Handler and is heading up the company’s newest office after its expansion into Brisbane.