Reasons why investors should look outside of Sydney for their next investment purchase

6 reasons why Sydney isn't the best market to invest on an average Australian income. Plenty of other opportunities to consider in 2023

1. Holding costs

Cost of buying a house in Sydney is close to $1M. In today’s high interest rate environment this comes to around $20,000 in holding costs every year. This is a significant burden to an investor’s pocket and can also drastically affect borrowing capacity for future properties.

While a lot of investors seek to get into apartments in Sydney this too has its drawbacks because of the reduced capital growth in apartments as compared to a standalone house.

2. Sydney does not always keep on “growing”

Sydney had excellent growth during 2012-2022 (113%). However, during the 10 years prior to that it only had 30% growth. This is because the property markets are cyclical and they move in certain patterns. There are periods where they have excellent growth and periods where they have no growth. Therefore, it’s incorrect to assume that the Sydney market always keeps on growing no matter at what stage you enter it.

3. Take advantage of a growth market in Australia

In Australia most markets average around 6% per annum growth over the long term (over a period of 30 years). However, this growth does not occur linearly. Most of it comes through accelerated growth over a short time frame. Therefore, an investor would hugely benefit by being able to enter into a market that has just started its growth cycle. This would only be possible by adopting a borderless approach and being to open to invest anywhere in Australia where pressure is starting to build up on house prices.

4. Affordability

Housing affordability is a measure of how comfortable people are with monthly mortgage repayments. When people can’t get into expensive suburbs they look towards the affordable suburbs. As more and more people move into these affordable suburbs house prices in these areas pick up. Therefore, affordability is a key driver of demand. In Sydney affordability has clearly been stretched. However outside of Sydney there are several interstate markets which are affordable and has had strong interest from homeowners and investors alike. In fact, these markets have moved up by around 10-20% on average over the last year whilst Sydney was going through a decline.

5. Diversification

If you already have an investment property in Sydney, diversifying into a different state would mean that you lower the risk on your portfolio. For e.g. when one property drops in value you might have another property in a different market going up in value instead of both properties being in the same market and going down in value.

6. Capital growth and Cash flow

When a market booms both property values and rents start moving up very fast. There are plenty of interstate markets in their early stages of their growth cycle where rents and property values are going to increase rapidly. This means that whilst you are getting capital growth your cash flow situation is also healthy with the high rental yields that you would receive through the growth in the rental market.