Buying an apartment in Sydney vs other capital cities

Sydney is renowned for its landmarks, its beaches… and how expensive it can be. This is especially true when it comes to the property market, with Sydney often leading the country in dwelling prices. So, if you have the option, would you be better off buying a unit in Sydney, or a unit in one of Australia’s other capitals? 

Comparing unit prices

According to the latest Domain House Price Report, December quarter 2022, the median price of a unit in Sydney now sits at $748,422. This is down 6.5 per cent compared to December 2021, when the median price was at $800,422.

Source: Source: Domain, powered by APM

Based on this data, Sydney remains the most expensive city in Australia when it comes to buying a unit, even after experiencing a significant price fall since the previous year.

Assuming a borrower applied for a home loan to buy a unit with a 20 per cent deposit (around $149,684), and borrowed the remaining purchase price (around $598,738), the borrower could be paying $3807 per month for 25 years at an interest rate of 5.86 per cent.

On top of this, a borrower would need to budget for stamp duty and other upfront costs. And while it may be possible to borrow with a lower deposit, you may want to be supported by a government program or a guarantor – otherwise you may have to stump up for LMI as well.

These calculations are estimates for informational purposes only, and do not account for fees or changes to interest rates over time.

Looking at stamp duty

Stamp duty in Australia is a tax that’s charged by the state government when property (notably real estate) changes hands.

In Sydney, buying an apartment in Sydney at the median price of $748,422 could mean also having to fork out around $28,773 in stamp duty, according to the NSW government calculator. First home buyers may be able to get a partial discount, as this value falls between $650,000 and $800,000, but would still need to pay around $20,403.

First home buyers in NSW could also choose to opt for First Home Buyer Choice, where instead of stamp duty they pay an annual land tax. The exact amount would depend on the land value of the property (not the purchase price) as assessed by the NSW Valuer General, costing $400 plus 0.3 per cent of the land value each year.

In comparison, buying an apartment in Melbourne, Sydney’s traditional rival (except during State of Origin), the stamp duty for a median-priced unit of $561,463 would be $28,758. While there’s no option to swap to a land tax, first home buyers could see their stamp duty waived altogether, as this median price is less than Victoria’s $600,000 cap for stamp duty exemptions.  

What about capital growth?

As well as buying a home to live in (or an investment property to get rental yield from), buying a unit lets you build up equity in the property. This can occur through making principal and interest repayments and extra repayments, as well as through capital growth, where the value of your property rises over time.

Based on the Domain data, Sydney saw the higher percentage decline in property values compared to the other capitals with -6.5%, followed by Melbourne with -5.8%. It’s important to keep in mind that while prices in these capitals have fallen, this is a fall from a high peak during the pandemic, when record-low interest rates spurred a frenzy of home-buying activity.

In a related example example, CoreLogic research director, Tim Lawless, said regarding a fall in the January 2023 Home Value Index (HVI):

“Record declines in home values follow a record upswing, both in magnitude and speed. The national HVI was up a stunning 28.6% in the space of just 19 months."

“Despite the recent sharp drop in values, every capital city and rest-of-state region is still recording home values above pre-pandemic levels, although Melbourne’s index would only need to fall a further -0.4% before equaling the March 2020 reading.”

For units that grew in value, Adelaide saw the highest percentage unit value growth with 13.9% year on year. According to Domain, Adelaide was “the only capital city market in Australia to end 2022 with record high house and unit prices after positive growth over the December quarter.” However, it was also noted that the annual growth in unit prices had also slowed for the first time in over a year, which could indicate that the upswing is losing some steam.

It's also important to note that house and unit prices may not decline forever. SQM Research’s Housing Boom and Bust Report forecast that capital city house prices may rise between 3 and 7 per cent in 2023, or even between 5 and 9 per cent under ideal conditions. Of course, this would require the RBA to keep the cash rate under 4 per cent, inflation to drop to 5 per cent, and unemployment to stay under 5 per cent. If the RBA also chose to cut the cash rate in the second half of 2023, that could provide the ideal conditions for the highest growth in property values.

Is it worth buying a unit in Sydney?

It's important to note that like other investments, past performance is not a reliable indicator of future performance. Also, while Sydney units may be priced highly compared to other capitals, the lifestyle benefits of living in Sydney may help make the high price worth it if you’re buying as an owner-occupier and that appeals to you.

Before you look at purchasing a unit in Sydney or anywhere else in Australia, consider your options and work out if this will be the best strategy to help you reach your personal goals and meet your financial needs. Contacting a mortgage broker could also let you benefit from some advice.

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