With regards to real estate, all five of Australia’s major metropolitan areas, especially Sydney, were “severely unaffordable” for the 12th year in a row. According to the study, a typical property in Sydney is 5.6 times the median household income.
So my question is what drives people to keep investing in such an expensive city?
Well, there are more reasons besides the beautiful beaches, parks and perfect balance between urban and city life!
- Strong Australian Economy
Australia has now chalked up 23 years of uninterrupted economic growth at an average annual rate of 3.3 per cent, an incredible accomplishment. We have a generation of young Australians who have never suffered an economic recession and the financial hardship that brings. The result of this consistent, long-term economic growth has been a significant improvement in our combined wealth, standard of living and real estate prices.
Besides natural population growth, immigration contributes largely towards increase in the Australian population. We have large number of overseas students migrating to Sydney and fuelling the economy. They pay full price tuition to universities (it’s not cheap by the way, you’re looking at roughly $12,000 alone in tuition per semester), they spend money at the shops and most importantly……Guess what? They rent properties! They make great tenants, without them so many investment properties would be vacant right now!
Additionally, a large number of skilled migrants move permanently to Sydney. So there are more people in need of buying properties.
- Low Interest Rates
Australia is now seeing the lowest interest rates in history. The interest is intentionally kept low to fuel the economy and lure property investors back on the market and guess what? It’s working! Mortgage payments are low when interest rates are low and you have more money to spend at the end of the month.
- Salaries and Wages
With strong economic growth, there are more jobs in the market and not enough talent to fill them. High demand for talent and low supply drive wages up so people are more positive and confident about their future. Confident people are more likely to spend and invest their money.
- Real Estate Sydney – Scarce Land Release
Sydney is a huge city with suburbs extending well into former farm and bush land. However, there are very few land releases for new stand-alone houses. This means more people have to compete for the existing houses which drive house prices up. House prices drive apartment prices up too.
- Number of People in a House
Households tend to get smaller over time: marriages can split, young adults move away from mum and dad’s home so what used to be a household for several people becomes a home for one or two. The others are on the market looking for a new house to live in.