Why Brisbane is best:

Currently the stock market is overpriced, bond yields are low, Sydney & Melbourne property prices are beginning to correct. There is however a boom just beginning in Brisbane in the last 12 months, and this trend is likely to continue for the next 3 years. Sydney yields are around 2.7%, compared with 7.2% in Brisbane. Even with a 21% median house price increase in Brisbane over the last 12 months, it is my view that properties have gone from ‘very undervalued’ to ‘undervalued’. They are by no means overvalued. To prove this, compare mortgage/income ratios between cities. In Sydney, 80% of after tax salary is directed to the mortgage. In Brisbane, this figure is 40%. This means it takes HALF as much effort to pay off a home in Brisbane. Now many people will tell you Sydney is better because Brisbane salaries are lower. This is true, but what most people fail to realise is that Australian tax rates are based on Sydney incomes. The average Sydney wage is $42,000, compared to $28,000 in Brisbane. However tax rates apply across the country, and Sydney salaries are taxed at a higher rate compared to Brisbane salaries, because their income is higher. The average house price in Sydney is now $657,000, compared with $265,000 in Brisbane. When you compare income/house price, you get the following ratios:

Sydney: $42000 / $657,000 = 6.39%
Brisbane: $28,000 / $265,000 = 10.6%

If we now apply the Sydney ratio to Brisbane property values, we can project where the market will top:

6.39% / $28,000 = $438,200

This represents a further 65% increase from current prices. A lot of agents and buyers think the boom has gone too far already, but these people need to understand what drives property markets. Nine months ago an agent in Toowong told me I was buying the top of the market. How wrong she was. It’s easy to see a 20% increase and think the market has gone too far. What many people forget, is that property prices in Brisbane were stagnant for 8 or 9 years, we are just playing catch up.

The fuel for this boom comes from many sources, namely:

– first home owner grant
– interstate investors
– sea change migration
– land shortage
– holiday homes
– low inflation
– low interest rates
– low unemployment
– weak global economy
– weak share market
– better mortgage / income ratio
– better rental yields
– lower stamp duty
– affordability
– performance to date

The first home owner grant is having a huge effect in Brisbane. $7,000 on a $300,000 Sydney house is a drop in the ocean. However $7,000 on a $100,000 Brisbane property is 7% of the purchase price, a real saving. It is little wonder all the houses in Beenleigh and similar cheap suburbs have been snapped up quickly. Young Sydney buyers can no longer afford to buy there, and are flocking to Brisbane where owning a home is more affordable. This trend cannot reverse, so there is really no reason for Brisbane property to fall in price. It may eventually plateau, but as in 1991 prices will not fall 30% like they did in Sydney and Melbourne