The news lately has mentioned that Sydney sales have rebounded slightly and this has poised many questions from our clients on whether they should invest in Sydney or QLD at this stage.
Let’s first break down the Costing:
A good investment home in Sydney’s West will set you back around $1 million with a rental of around $600- 650 per week. After rental and tax benefits, the out of pocket expense on a weekly basis will be around $100-$150.
This is the first drawback of buying in Sydney now, the cost out of your pocket in today’s market is greatly increased.
Today in QLD you could buy 2 properties for $1 million with a rental of $900 per week combined. In this case there may not be any shortfall after tax and rental to hold the properties.
So from a cash flow point of view QLD is a far better proposition.
Now let’s talk about future growth.
What has caused the peak in Sydney and how can this affect growth?
It’s not the shortage of buyers – clearance rates are high and there are many first and second home buyers in the market.
It’s is the availability of finance!
The recent interest rate drop created a slight boost in sales as a bit more money was available to purchasers, but the reality is this, the average family on current wages has around about a $800-$950,000 borrowing capacity. Allow for a deposit and that takes the market to around $1 mil to $1.2 mil maximum, which is around where house prices currently sit.
This causes the market to peak, simply because we can’t borrow any more money to allow prices to grow much more. Yes, there will be plenty of sales over the next few years, but not much growth.
Now in QLD you can buy properties for around $500,000, so you have room for the market to move up as more borrowing is available. So $500,000 can grow to $1 million.
You could buy in Sydney but the question is, why would you?
Is it because it feels safer, it’s a friends advice, your accountants advice, you want to drive past it every weekend to check on it?
All of these reasons are caused by a lack of knowledge of property markets. You are better off investing in an airfare to see why an area is a great place to invest rather than buying a $1 million property that does not achieve much growth in the next few years and costs you a lot out of your pocket each week.
Just food for thought.