Growing population to support Sydney and Melbourne’s house price growth

Despite the spike in housing prices in both Sydney and Melbourne in recent years, these two cities are expected to see further price growth in the next 12 months.

According to Knight Frank Australia residential research director Michelle Ciesielski who was here in Kuala Lumpur recently, house prices in Sydney and Melbourne are expected to go up by 3% to 5% in the next 12 months.

“The growth in the Australian property market is much more sustainable now than previously and with the large government spending on infrastructure, I believe the two cities will continue to grow over the next year,” she said.

Sydney and Melbourne have been offering better property investment opportunities since the shift of Australia’s economic centre of gravity from the West Coast to the East Coast.

“For many years, we had a commodity-driven economy on the West Coast, so we saw strong growth in residential property prices in the cities along the coast, such as Perth,” Ciesielski told TheEdgeProperty.com.

However, over the last few years, the situation has changed as the government has made more investments on the East Coast to improve connectivity, infrastructure and healthcare, she said.

According to Knight Frank Australia’s data, average house and apartment prices in Perth as at August this year declined 4.8% and 6% from a year earlier, to A$495,500 (RM1.63 million) and A$418,000, respectively.

Nationwide, from September 2015 to August 2016, house values saw a growth of 3%, less than half the growth experienced over the same period a year earlier at 6.7%.

The overall Australian property market is mixed as the capital cities in the country are far from each other with each city experiencing different cycles, explained Ciesielski.

“Throughout the period when house prices in Perth was experiencing strong growth, we did not see much growth in the cities along the East Coast, but this has certainly changed in the past two to three years,” she said, adding that now there are more property hotspots in the East Coast.

She points out that house prices in Sydney, the largest city in Australia, have increased exponentially and steeply from mid-2013 until end-2015 with an average annual growth of 14.4%, thanks to pent-up demand and short supply.

However, Sydney house prices have risen only 1.2% to A$1.049 million as at August this year from a year earlier. Apartment values in the city grew 3.8% to A$691,000 during the same period.

This is because the housing market has corrected to a more sustainable level for annual capital growth after a lengthy period of short supply, explained Ciesielski.

Looking at the next 12 months, although buyers will have many more choices available as more property projects will be completed, she expects that a large portion of the new apartments will be absorbed given the strong population growth in the area. Besides, the total vacancy in Sydney as at August this year was at 1.9%, well below the overall market average at approximately 3%.

“Population growth was recorded at 1.7% in the period of July 31, 2014 to June 30, 2015, and the New South Wales government continues to invest heavily in road and rail infrastructure keeping Greater Sydney unemployment low at 4.1% in September this year — this is trending 110 bps lower than the 5.2% recorded a year earlier,” she said, adding that these factors will support the housing market in Sydney.

Melbourne buoyed by population growth

Interestingly, house prices in Melbourne tend to follow the growth pace of Sydney, noted Ciesielski. “We are seeing a steady increase in house values in Melbourne, underpinned by a strong population growth over the last five years. The six-month average total vacancy of houses and apartments stood at 2.6% as at August 2016.”

She said the population in the Greater Melbourne area was estimated at 4.5 million in 2015. The area had experienced a population growth of 2.1% in the year up to June last year, ahead of Darwin (1.9%) and Sydney (1.7%).

According to the Australian Bureau of Statistics, Melbourne’s population is expected to surpass Sydney’s by 2036. “The growing population will continue to drive house price growth in Melbourne,” she said.

As at August this year, house and apartment prices in Melbourne grew 6.1% and 3.1% to A$742,500 and A$500,500, respectively, from the prices recorded in the same month last year.

She pointed out that Greater Melbourne is fortunate to have a lower entry point compared to Greater Sydney with the median value for an apartment at A$691,000, thus the area is poised to continue being sought after by foreign buyers and interstate investment.

“Overseas and interstate migration continue to be attracted to the planned city, with world-class universities, well-designed sporting precincts and an efficient transport system,” she said.

Meanwhile, Knight Frank Malaysia senior manager of international project marketing Dominic Heaton-Watson said the bright outlook for Sydney and Melbourne is great news for Malaysia as the two cities will offer good opportunities not just in property investment but also immigration.

Besides Sydney and Melbourne, the Gold Coast on Australia’s East Coast will also offer genuine opportunities for investors as the government is building infrastructure in the area to prepare for the 2018 Commonwealth Games, he pointed out.

Knight Frank has been receiving overwhelming response from Malaysian investors for the Australian projects it is marketing here including Chloe and Hank in Melbourne, Amara in Sydney, and Essence in the Gold Coast, said Knight Frank Australia head of international project marketing Rebecca Pugh.

These projects are located in the vicinity of the central business district with good connectivity, transport and educational institutions. “Australia is such an open and investment-friendly country and it is always a good time to invest in property, which is good for wealth creation and preservation,” said Heaton-Watson.

However, foreigners are only allowed to buy new properties and there is a fee imposed on them for purchasing Australian real estate, reminded Ciesielski.

The application fee is at least A$5,000, with an additional A$10,000 payable for every million dollar increment in the value of the property.

She also advised investors to do sufficient research before buying into a new market. “Investors should seek local advice regarding every aspect of the investment to prevent mistakes,” she added.

This story first appeared in TheEdgeProperty.com pullout on Dec 9, 2016, which comes with The Edge Financial Daily every Friday. Download TheEdgeProperty.com pullout here for free.