THE FACTORS AFFECTING THE SYDNEY RESIDENTIAL PROPERTY MARKET

Abstract

The residential property market is the largest sector of the Australian property market. Residential property constitutes the major investment for most Australians. Investing in Australian property is also popular among Singaporeans. The Australian residential property market is made up of over 6 million dwellings with an estimated worth of over 750 billion Australian dollars. This enormous market offers tremendous opportunity for both income generation and capital appreciation. Although residential property markets are complicated, they are understandable to the informed participant. The residential property market is affected by many factors. The purpose of this paper is to identify the key economic factors affecting the Sydney residential property market. A clear understanding of the factors affecting the viability of residential property purchase in Sydney would assist the investor in making an enhanced assessment of real estate propositions. This study uses annual data from 1980 to 1996 to assess the relationship between residential property prices and 9 macro economic factors. Out of the 9 proposed factors, the final model utilises only 7 independent variables in predicting house price. The 7 factors are: consumer price index, gross domestic product, awards rates of pay index, standard variable mortgage interest rate, exchange rate, privately owned dwelling rental index and net overseas migration. The results show that among the 7 factors, exchange rate has the greatest influence on Sydney house price. This paper also seeks to provide a price-forecasting model for residential property in Sydney. Information, data and analysis, which will assist an investor to understand movements in the residential property market and the reasons for these movements, are also provided. The basic principles of demand and supply are used to predict any price movements, with consideration of likely economic situations. The development of the model should help investors understand the characteristics of residential property and its position in the Sydney's economy. Historical data on Sydney residential real estate is also included. This is important, as investors should have a thorough understanding of past property prices so as to be able to understand trends of the future. The author hopes that the understanding of the Sydney residential property market will ensure that any property proposition undertaken is done so only after considering the wide effects of the economic variables on the future of the investment.