Sydney Residential Property – A Tale of Two Cities

Sydney residential prices show why it is crucial to obtain good advice before investing in property.
While Sydney residential suburbs close to the city are showing strong capital growth, many other suburbs are languishing.

Estimates of underlying price movements can be distorted by measurement weaknesses. Typically, property prices are estimated using “median” prices – the value that has on either side of it the same number of more and less expensive properties. This can easily be distorted if, for example, the mix of properties sold does not replicate the mix in the region. The most accurate measure of property prices is an hedonic index, which strips out variations due to factors such as land size, number of bedrooms, views, location and so on. Hedonic property indices are being created by Rismark, who employs five people with PhDs in mathematics, finance and econometrics to calculate their numbers.

The latest Rismark data was reported in BRW on 29 November by the Research Director of RPData. RPData collects the property data used by most real estate analysts. Some relevant figures from the article are:

Over the year to October 2007, the increase in the Hedonic Index was:
· Sydney (close to the city):  18%
· Sydney (all areas):  8%
That is, very strong growth in central regions, and generally weak growth elsewhere.

Other strong performers were:
· Adelaide:  23%
· Brisbane:  19%
· Melbourne:  19%

In respect of Perth and Darwin, the report states that “Nationally, the real estate market is strong, except in Perth and, to a lesser extent, Darwin. Perth prices fell by 0.5 per cent in over the September quarter and Darwin prices increased by only 1.6 per cent.”

Most capitals have been showing solid growth in housing prices for several years. Sydney, however, has been generally flat since 2003/2004, and is just now starting to show overall increase in prices. We believe that Sydney is due for a catch up, and that now is the time to buy in selected Sydney suburbs.