Which is the better city, Sydney or Melbourne? For property investors there is no debate, the harbour city crushes Melbourne every time and it already looks like 2024 will see Sydney win again.
But hold on, Melbourne is growing faster. Melbourne is actually catching up with the NSW capital — the population gap has reduced dramatically from around 18 per cent in 2000 to less than 6 per cent today.
What’s more, by 2036 Melbourne is set to become the largest city in the land.
Nonetheless, property researchers PropTrack suggest prices in Melbourne will rise by 4 at most. Yet for Sydney, it is forecasting a 5 per cent rise.
Property investors — like all investors — know “the trend is your friend” and the price trend across the nation’s two biggest cities is crystal clear. Over virtually any period of time, Sydney wins.
Melbourn- based adviser Stuart Wemyss of ProSolution has done the numbers and found though the two cities have enjoyed comparable economic growth rates for decades, Sydney tops Melbourne in terms of median house price growth over 20 years, 10 years, five years and three years.
The last three years were among the most dramatic, with Sydney’s 10.4 per cent return triple Melbourne’s returns of 2.76 per cent.
For investors the price pattern is explained to some degree by Sydney’s famously restricted land development due to the encirclement of national parks, an issue almost entirely absent on the outskirts of Melbourne.
More recently, the Melbourne market has taken an extra hit from a cascade of state-based property taxes which had an incensed Real Estate Institute of Victoria CEO Quentin Kilian suggesting investors were “fleeing the state”.
But there are two sides to this story. Melbourne’s regulatory risk and potential land supply partly explains the price gap, but one of the less well known features of Sydney has been confirmed in a recent Knight Frank report which focused on the unique aspects of the city’s harbourside suburbs.
Investors will pay more in relative terms for a Sydney waterfront home than they will anywhere else in the world, from Monaco to Hong Kong.
The multinational real estate group’s Global Waterfront Index says Sydney buyers come first in the world for putting an on-average 118 per cent premium on a waterfront home, against an average around the world of 45 per cent.
Overall house prices across the capital cities gained around 9 per cent last year, a move which brought prices back close to all time peak levels.
Sydney greatly outpaced Melbourne over the year. A report from SQM research on 4 January said the 12 month gain for houses was 10.2 per cent for Sydney and 5.1 per cent for Melbourne.
As it stands the consensus outlook for house prices in the year ahead would appear to be a rise of around 3-5 per cent.
Yet even with a softer outlook for 2024, the gap remains in place. In the months of November and December, Melbourne house prices actually declined, while in Sydney they continued to grow.
Will it ever change? “Not anytime soon,” Cameron Kusher of PropTrack said.
“In the long term, I imagine a point will come when Melbourne starts to look more attractive. But this year we are already seeing a lot of stock coming onto the market in Melbourne.”
The yearly change in the number of sellers willing to put their properties on the market moved higher in Melbourne by 6.2 per cent, almost double the level for Sydney at 3.6 per cent.
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