The ‘Manhattan effect’ is rising in Sydney. iStock.com/Mihai Andritoiu

• 2015 McGrath Report: Infrastructure unlocks suburban growth
• 2015 McGrath Report: Melbourne market goes from strength to strength
• 2015 McGrath Report: Sunshine State Overview
• 2015 McGrath Report: Sydney’s big boom
• 2015 McGrath Report: Best suburbs to buy in
• John McGrath: What’s the price?

In our 2015 McGrath Report, we released some specially commissioned research showing Sydney’s inner ring now has a median house price above $1.5 million and the middle ring is above $1 million. This means the zone within 20km of the CBD is now too expensive for more than 90 per cent of Australians based on their ability to service loans beneath the widely-recognised mortgage stress test of 30 per cent of household income^.

These figures from CoreLogic RP Data show a rising ‘Manhattan effect’, with the inner ring increasingly becoming the exclusive domain of high-income earners. Household incomes of around $270,000 per annum* in the inner ring and $195,000 in the middle ring are required to service a typical loan. Even Sydney’s less expensive outer ring requires a household income above $100,000 for most people to avoid mortgage stress.

Here is a table showing the gross household income required to pass the mortgage stress test in the inner, middle and outer rings of the East Coast capitals.

Sydney

Inner Ring $268,000
Middle Ring $197,000
Outer Ring $104,000

Melbourne

Inner Ring $156,000
Middle Ring $118,000
Outer Ring $75,000

Brisbane

Inner Ring $114,000
Middle Ring $84,000
Outer Ring $65,000

Here are the median house and apartment prices for the inner, middle and outer rings of the East Coast capitals.

Sydney

Inner Ring $1.6M (H) $750,000 (A)
Middle Ring $1.2M (H) $615,000 (A)
Outer Ring $625,000 (H) $450,000 (A)

Melbourne

Inner Ring $936,000 (H) $510,000 (A)
Middle Ring $705,000 (H) $500,000 (A)
Outer Ring $452,000 (H) $365,000 (A)

Brisbane

Inner Ring $683,000 (H) $450,000 (A)
Middle Ring $505,000 (H) $350,000 (A)
Outer Ring $388,000 (H) $305,000 (A)

So what do we do about this? Social demographer Bernard Salt posed the following question in an article published by The Sydney Morning Herald in June this year:

“It’s almost like the Manhattan effect. You only attract rich people on to the Manhattan island, and the rest live out in Brooklyn. Should a global city like Sydney really offer a place for everyone? That’s a social question.”

Over the past few decades, we’ve seen Sydneysiders adapt to the city’s rising affordability issue in many ways. The classic scenario involved moving further out from the CBD where bigger houses were more affordable. That was then. Today, you need around $625,000 to buy just an average house in the outer ring, which is defined as 30km from the city centre. That’s a lot of money and a long way to commute just for the privilege of living in Sydney.

Other trends prompted by affordability have included families choosing apartment living over houses so they could buy a home for less in a better location; as well as families moving to regional locations within a 90-minute commute, such as the Central Coast and Wollongong.

We believe the next step is leaving the city altogether.

We’re not expecting a mass exodus, but we do feel that Melbourne, Brisbane and NSW coastal regions will become increasingly attractive to the rising number of Gen X middle income earners who are simply tired of Sydney’s higher cost of living. The next generation of families among the more nimble, lifestyle-focused Gen Y will inevitably follow.

There’s evidence of this now, with latest Australian Bureau of Statistics data showing an increasing number of Sydneysiders migrating to nearby commuter seachange locations while others are heading to Melbourne. In fact, Melbourne’s population has been growing faster than Sydney’s since 2000 and its net interstate migration is at its highest point in 40 years. In 2014, almost 30 per cent of that interstate migration came from Sydney.

Further, in two out of three models used by the ABS to project future city populations, Melbourne will overtake Sydney in either 2030 or 2053. Let me say that again. Melbourne’s population is going to overtake Sydney’s — and a big reason is interstate migration.

Times are changing for Sydney. Stay tuned.

* Median gross household income required to pass the mortgage stress test of no more than 30 per cent of income used to cover home loan repayments. Based on median priced houses (80 per cent LVR Principal & Interest Loan over 30 years at 4.75 per cent)

^ Calculations based on most recent ABS Household Income and Income Distribution report (2011-12). Mortgage data supplied by oxygen.com.au based on 80 per cent LVR Principal & Interest loans over 30 years at today’s discounted standard variable mortgage rate of 4.75 per cent. Mortgage stress is widely recognised as using more than 30 per cent of gross household income on housing costs.

The sub-$1 million market on the Gold Coast has been buzzing. iStock.com/Harlz

• 2015 McGrath Report: Sydney’s big boom
• 2015 McGrath Report: Best suburbs to buy in
• John McGrath: What’s the price?
• John McGrath: Choosing an investment location

In last week’s column I took a look at the local factors influencing the market in Sydney. This week, let’s look north to the Sunshine State for a snapshot on what’s happening on the ground in Brisbane, the Gold Coast, the Sunshine Coast and surrounding regions.

Overall, South-East Queensland has shown stability in 2015 with consistent sales activity, however price growth did slow to just 4 per cent along the Brisbane to Gold Coast corridor for the financial year. The reasons behind this include the lowest net interstate migration in more than two decades; a weak state economy; comparatively high unemployment; and the change of government. At a macro level, there have obviously been challenges.

Drilling down though, some areas are experiencing exciting activity. Low interest rates are encouraging upgraders in the $1 million-plus bracket in premium areas such as Ascot, Hawthorne, New Farm, Bulimba and Paddington. Many are choosing to keep their existing homes in the $500,000-to-$1 million bracket for investment.

First home buyers are also back, buying in affordable suburbs like Mansfield, Salisbury and Belmont where homes are selling faster than anywhere else in Brisbane, according to CoreLogic RP Data.

Solid demand and a shortage of homes for sale in some areas pushed Brisbane’s auction clearance rate to its highest level on record (since 2009) at 50 per cent for the year to August. By comparison, over the same period of the year, Brisbane recorded 46 per cent in 2014, 40 per cent in 2013, 33 per cent in 2012 and 24 per cent in 2011.

Apartments are a different story, with a rising oversupply in inner-city areas like West End, Fortitude Valley, Newstead and Hamilton. Buyers are very discerning and only competing for properties with unique features. Downsizers are snapping up three bedroom properties but the smaller non-descript options are sitting on the shelf.

Typically, an increasing house price gap between Brisbane and Sydney is pivotal in creating new market energy. By August 2015, the gap was $431,500 – the largest gap in dollar terms on record with Sydney house prices 88 per cent higher than Brisbane, according to CoreLogicRP Data.

As a result, we are now seeing a steady flow of Sydney and Melbourne buyers heading north. Southern investors are chasing capital growth and the highest yields of the major capital cities, while young families are seeking affordability and lifestyle.

Owner-occupiers are purchasing Queenslander-style family homes in blue chip areas where they are paying half what they would in Sydney for an equivalent home. Many are leasing these properties for decent yields while they look to secure work before moving here permanently.

On the Gold Coast, the sub-$1 million market has been buzzing with a mix of local upgraders and southern investors and seachangers. It has also been an excellent year for prestige property with the entry level of the region’s Top 50 Home Sales (Gold Coast Bulletin) in FY15 rising to $2.5 million from $1.323 million in FY14.

The China Factor – a key element in Sydney and Melbourne’s booms — is increasingly at play in Queensland, and especially on the Gold Coast. The juwai.com property portal reports purchasing intent up by 1,120 per cent year-on-year, which is not surprising as more Chinese developers build locally and market their projects directly back home.

Construction on the long-awaited $1 billion Jewel hotel and apartment project at Broadbeach by its Chinese owners began in March and the first non-stop flights from the Gold Coast to China have now commenced.

On the Sunshine Coast, the market is bullish especially above $1 million. Locals who have been waiting out the post-GFC downturn are upgrading now and we are seeing a significant influx of southern seachangers. Buderim is among the favourites due to its schools; and lifestyle homes are popular in Noosa, Mooloolaba and Sunshine Beach.

I remain very optimistic about South-East Queensland. The weakening dollar will boost tourism, there are a slew of new infrastructure projects underway and the economy appears to be responding to new political management.

While the Gold Coast has always had a good international reputation, Brisbane is increasingly asserting itself as a sophisticated global city, particularly following the G20 in 2014. The ‘big country town’ stigma of old has been eroded by a continuing undercurrent of social, economic and cultural change.

Once state economic conditions improve and Sydney slows further, the South-East Queensland property market will be ready to roar.

There’s no doubt about it — it’s a seller’s market in these two booming capital cities. Melbourne, for example, recently broke through the $700,000 median price ceiling for the city for the first time, evidence of the strong buyer activity of late.

The median house price in Melbourne soared to $706,000 at the end of the 2015 financial year, up from $671,000 recorded during the March quarter, which represents more than a five per cent quarter-by-quarter increase. As REIV chief executive officer Enzo Raimondo noted, “the last time we had a quarterly increase this great was in late (December) 2014”.

Minutes from the Reserve Bank of Australia’s board meeting on June 2 provided insight into the upward market trend, stating “there was a relatively low stock of dwellings for sale in Sydney and Melbourne and… dwellings took only a short time to sell”. Coupled with record low interest rates and increased buyer activity from local and overseas investors, it proved to be perfect conditions for driving up house sales prices in both cities.

So what does this mean for vendors moving forward? Is the boom likely to continue or can we expect prices to stabilise?

The great news for vendors — and therefore not so great news for homebuyers — is that this trend is likely to continue for the rest of the quarter. So if you’re thinking of selling but waiting for the Spring market, it could be time to consider bringing your plans forward.

Typically, homeowners prefer to sell in Spring as it gives them an opportunity to market their property in the best possible light. Gardens are in full bloom and the interiors are radiant, airy and fresh. The trouble is, many vendors think alike and the Spring market is often overloaded with stock.

There’s also a belief that more buyers hit the market in Spring as opposed to searching for properties in Winter. That’s not necessarily the case.

One of the things you need to consider as a vendor is how your home would appear on the market, particularly in the competitive window from October to November, for example. Does it have enough wow factor? And does it have a point of difference that will allow it to stand out from the crowd?

Choosing to place your property on the market before the Spring rush doesn’t mean your campaign has a higher risk of not selling or will attract a lower price than if sold later in the year. If you consider the current market conditions of low stock, record low interest rates, strong investor activity and enthusiastic first-time and second-time buyers, we have all the ingredients required for a healthy sale price. They’ve been the reasons why both the Sydney and Melbourne property markets have enjoyed so much success of late, and they’re the reasons why I’d encourage homeowners to consider selling before Spring.

Spiro Drossos is a Director and Auctioneer of Barry Plant Manningham. He is a three-time REIV Residential Salesperson of the Year and was nominated for the 2014 REIA National Salesperson of the Year Award.