Think Sydney Property Is Expensive - Think Again
On the back of a record run for property prices on the East Coast of Australia, many buyers and investors have started to ask whether Australian property has become too expensive.
In Sydney, house prices have risen by 47.1 per cent in real terms over the past 10 years to December 2018. As of April 2019, you are expected to pay around $880,594 for houses and $687,327 for apartments in Sydney, according to data from CoreLogic. While that is still down from the most recent highs at the peak of the cycle which saw median values were around the $1 million mark, it is still an intimidating number for many.
However, when we start comparing the value of Sydney property to other leading global cities such as Hong Kong, New York, London or even Vancouver, in terms of liveability, Sydney is a star performer.
For many years, Hong Kong has been the benchmark for sky-high property values and in particular unaffordability. The average value of a Hong Kong apartment is approximately HKD$8,000,000 or AUD$1.427 million, according to recent data from Ricacorp Properties, which is significantly more than what you might expect to pay in Sydney. And when we look beyond the headline numbers, we see that Sydney offers a far more enticing proposition by many metrics.
Hong Kong is a financial hub and as such the average wage workers earn is expected to be comparably higher. However, the average home in Hong Kong is in fact 17-18 times the median wage, based on affordability studies conducted by The Economist. In Sydney, the average house price was recorded at 9.1 times the average income. While that is higher than what we saw a decade ago, when it was 6.8 times, it is still effectively half that of Hong Kong. And that is comparing Sydney house prices to Hong Kong apartments, as houses in Hong Kong are so rare.
Size wise, Sydney is also a far better deal. With the average apartment in Hong Kong coming in under 40 square metres and priced at $40,173 p/sqm according to Numbeo. In Australia, you wouldn’t get many studio apartments that are less than 40 square metres and most owner occupier apartments are upward of 80 square metres. For a Sydney city apartment, you are looking at roughly $14,300 per square metre, which is nearly a third the cost of the micro-apartments in Hong Kong.
The reason for the huge discrepancy in Hong Kong and Sydney is based around the way the Hong Kong Government manages the land. Hong Kong has a population of 7.5 million and every inch of spare land is owned by the Government. And while the land is theoretically limited, only 30% of the total area is currently being used with only 7% of the city zoned for residential use, putting extreme pressure on those looking to buy or even rent.
There is also a huge wealth discrepancy in Hong Kong. Where the earnings of the super-rich pale in comparison to the minimum wage earners who make around HKD$37.50 (AUD$6.70) per hour.
That said, land in Sydney is also under the same type of restrictions, particularly in places like the Eastern Suburbs, the Inner West or the Lower North Shore that are landlocked and also highly restricted to new high rise developments. There are far fewer opportunities for developers to expand the supply of houses in many of the high-end beachside suburbs like Bondi or Manly as Government and local councils push new residential areas further and further away from the CBD. As such, these popular suburbs face similar types of price pressure because of supply and demand, while providing very different lifestyles to somewhere like Hong Kong.
To compare the point further we only need to look at what we can get for our money when hunting for a home in either Sydney or Hong Kong.
If you’re looking for an apartment in Sydney’s upmarket Eastern Suburbs, you are going to be paying around $1.3 million according to Realestate.com.au to buy into a highly desirable suburb like Bondi. That will get you a two bedroom unit, close to the beach and only kilometres from the CBD.
In Hong Kong, a small flat under 40 square meters on Hong Kong Island costs an average of HK$182,000 ($32,500) per square meter, or AUD$1.3 million, according to the Rating and Valuation Department’s data from 2018. With a vastly different lifestyle to that of Bondi Beach.
In reality, both Hong Kong and Sydney are truly global cities with wide-ranging business and job opportunities as well as huge appeal. As such they are both likely to command a strong premium to other areas around the world.
Even with the huge prices investors in Hong Kong are required to pay to purchase property, Citigroup expects prices to rise by 5-15% in the next 12 months, which just shows the power of scarcity mixed with rising demand.
So while Sydney locals might bemoan the high prices they are paying for their mortgages, spare a thought for those living in other cities like Hong Kong, that simply don’t compare with Australia in terms of affordability, value and lifestyle.