Melbourne vs. Sydney Property Market: Same, Same but Different.

WordPress Username: danieltrifkovic  |  Deakin ID: 216203812

Introduction

Being a naturalised Melbournian for over 25 years and recently, having been given an opportunity to work and live in Sydney, a distinct difference that has triggered much discussion with colleagues, friends, is the differences in Consumer Behaviour, particularly the Sydney-Sider’s Willingness to pay higher prices than their Melbourne Cousins for property.

While the two major cities in Australia are strikingly different in appearance, with Sydney; an organically grown city around water, and Melbourne; a strategically positioned grid away from the Bay, we see striking similarities in social, economic, cultural demographics.

 

The ComparisonMelbourne-Sydney_1400x450-1400x436

As previously mentioned, the geographic differences of Sydney and
Melbourne have been well documented but, Are the two cities really that different? Realestate.com.au report, The Melbourne CBD and fringe contain 4.7million residents with 4.9million for Sydney, with the forecasted population in Melbourne out-stripping Sydney in the near horizon. The average wage in Sydney is 78,000 AUD compared to Melbourne 75,000 AUD. Rental yields are very close also, with a slight edge to Sydney. The global economic slowdown has affected both Sydney and Melbourne; there is no doubt that both states are equally feeling the pinch.

Realestate.com.au has the average median house price in Sydney slightly over the $1,000,000 mark with the Melbourne Property Market only recently cracking past the $700,000 barrier. With salaries relatively similar, living conditions relatively equal “What is driving the Sydney Consumer to pay so much more for their bricks and mortar, than their Melbourne Counterparts?”

Certainly, some cracks have begun to appear in the Sydney Market, with clearance rates falling below 75% and forecasted growth in Sydney reduced to 2% over 2016 compared to 7% for Melbourne however, a reduction in the Sydney-Melbourne Housing Market Price-Gap would be minimal even with these estimates considered.

 

Chinese Consumer Behaviour and Potential Impact on Domestic Consumer Behaviour

With the number of Chinese tourist visitors expected to exceed 1-million people this year, there is no doubt that Australia has become a desired place to visit. Sydney is still the front-runner in this regard, with the beautiful harbour, warmer-weather appealing to the majority of Chinese tourists looking to get away from the cold, overcast settings of their native homeland.

Further, the national impact of Chinese Property Investment has been estimated anywhere from 10-15% of properties, particularly at the high-end scale of the property market. With greater portion of tourism going to Sydney and a larger availability of high-end property, one could conclude that the ‘state-level’ impact of the Chinese Investor would be greater in Sydney then in Melbourne thus, contributing to increased demand in Sydney and by virtue of basic economics, forcing the domestic Sydney Consumer to pay disproportionality greater prices in Sydney.

 ray-white-mitcham-1400x450-1400x436 (1)

Marketing Psychology at Play?

Social Proofing could provide context and potentially solve this statistically inconsistent conundrum.  Simply put, if Sydney Property Consumers begin to pay an increased price for a house in a particular area, deemed ‘more valuable’ and this trend continues to develop by-way of overwhelming numbers, the local ‘Prospective Purchaser’ will feel a need or ‘level of acceptance’ with paying an increased price for a home, even though they feel the their paying more than the property is worth.

Finally, property is an extremely subjective market; there is relatively no-level of finite resources or precious metals that go into a home, you therefore can’t benchmark the value of property, simply put, the value of property is defined by; ‘what people are willing to pay for it’. This undoubtedly makes property a largely emotional decision, further supporting the impact the social environment can have on the consumer.

 

References:

1.Freed, J. (2016) ‘ Annual Chinese visitor numbers exceed 1 million for first time, The Sydney Morning Herald, 13 Jan, p.1-2. – Available at: http://www.smh.com.au/business/the-economy/annual-chinese-visitor-numbers-exceed-1-million-for-first-time-20160111-gm3shn.html. [Accessed 29 March 2016].

  1. Melbourne, Victoria City Salary, Average Salaries | PayScale Australia. 2016. Melbourne, Victoria City Salary, Average Salaries | PayScale Australia. [ONLINE] Available at: http://www.payscale.com/research/AU/Location=Melbourne-Victoria/Salary. [Accessed 27 March 2016].
  2. Walter, P. (2016) ‘ Battle of the cities: Sydney vs Melbourne’, Realestate.com.au, 11 Feb, p.1-2. – Available at: https://www.realestate.com.au/blog/battle-cities-sydney-vs-melbourne. [Accessed 23 March 2016].

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