Sydney property to have bought a decade ago,
Sydney’s median house price has nearly doubled over the past decade. This surge in demand to live in the city outpaces the available land supply.
In contrast, unit prices have increased at about one-third of that rate. This discrepancy challenges the conventional wisdom that property doubles every ten years.
According to the latest Domain House Price Report, Sydney house prices rose by 94.6 percent. As a result, the median price now stands at $1.65 million as of September 2024.
Just a decade ago, the typical Sydney house could be purchased for $850,000. Meanwhile, the average unit price was approximately $605,000 at that time.
Since then, unit prices have risen 34.6 percent to a median of $815,000. This growth is significantly lower compared to house prices in the same period.
Dr. Nicola Powell, Domain’s chief of research and economics, explains that Sydney’s constrained geography contributes to rising prices. Furthermore, the limited capacity for urban sprawl exacerbates the situation, driving demand higher.
“Sydney is entirely landlocked, and this landlocked nature creates a price premium for land and, consequently, for houses,” she stated.
Additionally, when you combine this with Australians’ preferences for houses, it establishes a strong foundation for significant growth rates.
The past decade featured a boom in unit construction, which was later followed by stricter lending regulations for investors. This regulatory change reduced the buyer pool for certain types of units.
Once the pandemic started, many Sydneysiders began seeking detached houses that offered more space for remote work.
“Generally speaking, houses tend to experience greater long-term growth rates,” Powell explained.
This is because the land itself appreciates in value while the house may depreciate over time.
In contrast, units or apartments do not see similar rates of price growth.
Furthermore, Powell noted that it isn’t guaranteed property prices will double every decade.
The slower growth of units makes it challenging for first-time buyers to upgrade, even though it improves affordability for entry-level properties.
Even within the unit market, apartments favored by investors do not necessarily grow at the same rate as heritage units.
“It’s almost like starting anew – after buying your first home, moving from a unit to a house is much more difficult,” she said.
“It’s decidedly inferior. The capital growth seen in a unit cannot be compared to the gains experienced by Baby Boomers.”
Receive the latest property news and advice directly in your inbox
“When prices decline, it benefits anyone trying to enter the property market. However, we must consider how we build and develop.”
She emphasized the need for a diverse range of affordable housing options, such as terraces and townhouses.
PEXA chief economist Julie Toth concurred, stating that land value has increased more rapidly than the value of the built structures.
“Land is a fixed commodity, and it is finite,” she noted. “As demand for that land rises, prices increase because we cannot create more land.
What we can do is increase the density on that land,” she added.
Toth mentioned that there are specific locations and time frames where property values have doubled in a decade. However, this growth is not uniform across the board.
Sydney’s geography poses challenges due to the harbour, coastline, and mountains. This situation makes it more difficult to supply new housing compared to cities like Melbourne.
“That situation has led to increased pressure on existing homes; adding new dwellings in these areas is quite challenging,” she explained.
On the flip side, lower capital growth can improve housing affordability, she added.
“We aim for a significant increase in housing supply while also achieving better affordability, which realistically means slower, smaller price increases,” she stated.
“If we want improved affordability, we cannot simultaneously seek capital growth from housing,” she emphasized.
Buyers’ agent Peter Kelaher from PK Property noted that many buyers prefer houses. However, those wanting specific Sydney locations might opt for more affordable apartments instead.
He recommends that unit buyers select areas with limited new apartment developments to enhance their capital growth prospects.
Moreover, they should avoid buildings with concrete cancer and carefully consider the build quality of new apartments.
Sought-after features in apartments include a balcony, open-plan living, an internal laundry, and off-street parking, he mentioned.
Realistic strata fees for a two-bedroom unit valued at up to $2 million may range from $800 to $1,800 quarterly.
Furthermore, buyers should inquire about any upcoming special levies and check the balance in the sinking fund.
“If you can find areas where new apartments can’t be built anymore, that’s an excellent investment opportunity,” he said.
However, the challenge lies in finding these established areas, which often come with higher price tags.
