Why Syd/Melb will continue to outperform Brisbane

>90% of people here seem to believe that Syd/Melb is at the end of its cycle. Brisbane has lagged behind for the last 10 years and now it's Brisbane's turn for substantial growth.

I'd like to get a discussion going around why Syd/Melb will continue to outperform Brisbane.

I have had a look at the annual growth going back to 1970, and usually Brisbane's growth is lagged by around 2 years compared to Syd/Melb. So usually Syd/Melb gets going, and then 2 years later Brisbane gets going and catches up over the subsequent few years. But the last 10 years was a bit of an anomaly, and Brisbane never got going (excluding FY2021 where everywhere in Australia boomed). Possibly there is something fundamental that counteracted the usual cycle and led to Brisbane underperforming over this period. Could this continue going forward? Thoughts?

 

Syd mel will always be more expensive than brisbane. But its less likely that the bris to syd mel ratio keeps falling. So bris can certainly outperform syd mel for a number of years. Bris might even overshoot, and then might lag syd mel for a few years.

bris did that back in the early 2000s. Then mel, then syd.

 

Just quoting as a reminder so I can revisit in 12 months.

Brisbane > Melbourne

 

I suspect it was the 2011 floods, they stopped any momentum dead in its tracks

 

Brisbane is building a strong reputation and has the power to become a global city imo. The Olympics will set it off. I can seen Brisbane equal with Melb in the next 20-30 years. Obviously Sydney is it’s own beast.

 

Even after the 2011 floods as some riverfront from west -end up too yeronga went down 50 percent most of those properties now are way above those entry levels and selling in the millions plus ..
So even with the topsy-turviness after the floods investors still found opportunities even under those conditions..
From the small amount of people holding investment property in Brisbane i know all think what happening
will go on for years --at least while the rates stay low and ''don't try to predict the market''..

 

That would require a 50% gain in median. Can't see that but would not mind if that happened. If that happened it would be at the expense of Sydney and Melbourne. You would see massive falls. There is so much money in the system....I can't see the Chinese investing here they will have their own issues about crackdowns in their property market and outflow of money.

 

The chinese (evergrande) are offering 28% discounts and directors are being held hostage lol. I expect the crunch to really be felt in melbourne. I've warned everyone. I've been actively selling the last 3 months.

 

Property values are at risk in climate change hot spots, RBA warns

"The regions projected to see the biggest rise in the proportion of properties as high risk out to 2050 include highly populated areas in southeastern Queensland and northern NSW, which have a large number of houses at risk of coastal inundation."

They should give us a list of areas/postcodes where this is projected to happen

 

One of the things that Bris has is a low coat of entry......this means something when affordability comes into the equation.

So I can't buy in Sydney, even if I wanted to. But I can buy is Brisbane.

So Brisbane outperforms Sydney, bc Sydney is not an option.

 

Why Syd/Melb will continue to outperform Brisbane :

Sydney and Melbourne in Kearney's top 25 global cities
Global Fintech Rankings 2021: Australia now ranks 6th in the world

 

Not sure if it will outperform, but there certainly is a lot of opportunity in Brissy for many years to come. As you rightly pointed out, cost of entry in Syd and Melb will be even greater when all is said and done. Money has to flow somewhere. My gut is Brissy and surrounds will have massive opportunities for some time to come.

 

Two key factors (pre-COVID) stand out to me:

• Through the 2000s QLD (and WA) both had absolutely massive record level private investment in mining, and oil and gas. Wages were insane, houses were not getting built, and both cities began to exist above their means because of this. These projects largely transitioned from construction to operation in the early 2010s and there has been a long adjustment period for it. WA obviously significantly more impacts, and i will end reference to WA in this discussion there. in any case, the 2010s became a decade of rebalancing for Brisbane as the QLD economy adapted from a major industrial construction cycle
• Migration policy has significantly opened up in the last 10 years, and Sydney and Melbourne both benefited greatly for this. Firstly with international study taking off, Sydney and Melbourne benefited greatly. Compounding this, their state governments were both in a position to open up the cheque books for major infrastructure (backed by federal money as well... since the GFC it seems the fed has not stopped splashing cash) and in doing so created a huge need for jobs. more students, more workers, and record inbound migration made need for dwellings. the initial dwelling shortage from 2013 to 2017 meant prices took off. supply met demand around 2017/18 and there was a market stall. since then, cheaper interest rates and ongoing strength in jobs markets kept them alive

Brisbane is entering COVID from a low base of private investment, wages, and migration. Melbourne and Sydney are coming off record migration, a record jobs boom, and a record growth in spending. Take out any one of these and the scope to affect markets is huge by comparison.

The most exposed is Melbourne, for 3 reasons:

• highest population growth deficit. From a peak of 150,000 people a year to -50,000, its annual shortfall in expected population is magnitudes more than other cities
• highest level of new construction. damaging for 2 reasons; 1. supply will outweigh demand sooner, and 2. more jobs to be lost when the building industry adapts to lower migration
• highest dependency on continued government spending. Just check out the monumental amount the state government is pumping into the economy to maintain its already optimistic outlook. What happens when the level of spending that racks this much debt has to cool? do they think it will go on for ever?
• 

To me, Brisbane will absolutely out-perform Melborune over the next 5 years. Put simply, without population growth of 100,000+ people a year, Melborne's economy as it stands is cooked. there can't not be a re-adjustment period.

Sydney has all the same hallmarks of trouble, but all to a much lesser extent. I suspect sydney may also slow/stall, but i dont see it copping it as hard as melbourne. less migration impact, less construction industry impact, and marginally less reliance on government spending right now.

 

Sydney is also a truly global city in a financial/economic sense. Major international companies, headquarters of most of Aussie companies - for the most part they headquarter their Aus operations in Sydney (though this may change a bit with time). It will always have the cream of the crop in terms of wealth, jobs, services etc and that inevitably trickles down through to property prices in the surrounding areas.

 

Land is very expensive in Sydney because there is a scarcity of it. The National parks and land in many directions doesn't lend itself to new land releases (too steep etc). So, we end up having more apartments being built where single freestanding houses once were. The land value of single houses goes up. The land value of townhouse complexes goes up.

People still want to live here, but unless you have an existing house in Sydney or an inheritance, if you are a FBH you are limited to buying a home in areas such as western Sydney, Central coast or a unit or strata property. Even these options are not fantastic. So, perhaps more young people will either rent and invest elsewhere or possibly move to somewhere cheaper.

I do think that there are still many people able to afford Sydney prices. Loads of wealthy people in the world. Even very mediocre Sydney suburbs are over $1 million for homes now so pretty much any existing home owner in Sydney is doing well.

Units will continue to be significantly cheaper because adding unit stock is comparatively easy, and this will keep a lid on unit prices.

 

I agree. The demand for homes relative to stock available is massive. It always has been, always will be because you cant create more land in the high demand areas where jobs/infrastructure is.

Majority of Sydney will become more and more exclusive over time. It will always attract big dollars from people who can afford it.

 

Great analysis, there are cycles in everything in the universe. I think there's a reasonable chance that Brisbane can catch up with Melbourne as it has done so in the past due to the level of activities that will happen there in the next 10 years. Let's hope the weather won't "rain" on its parade.

 

IMHO, Syd/Mel will still outperform Brissy in a long run. In the next 2-3 years, Brissy will do well then plateau for a long time again...







Syd will still be the finance centre although some companies will move to Melbourne/Brisbane. But won't be all of them. Most companies need to be where the customers are. Given the climate advantage (subjective..), the richest will always want to live in Sydney.

Capital growth (long term): Syd > Mel > Bne
Capital growth (short term): guess it will eventually be similar once this boom is dusted... it's going up everywhere at the moment. Some went up earlier but will peak earlier too.

Rental yield: Bne > Mel > Syd

I'm not sure how many people / percentage of the population in any capital city will be able to fully WFH. If someone has the estimate, please share! But I assume only help desk, ITs or some other professionals have the ability to be 100% remote. Otherwise, the job market in Brissy still won't be as good as Syd/Mel...

 

Those with money or good earning power will continue to flock to Sydney Melbourne. Plus internal and overseas migrants. Simple!

 

Thanks for posting this, very interesting!

Does anybody know the correct way to interpret “vendor discounting”? Seems weird there’d be any discounting at all when we are seeing houses consistently sell above and well above asking price!