Sydney stands apart: Bernard Salt

@import url(/ignitionsuite/wysiwyg.css); Bernard Salt believes a perfect storm of fundamental market forces is – and has been – converging on the Sydney house market, making an already unique city into a highly-unaffordable, wildly-cosmopolitan, lifestyle choice on steroids.

This is not a bubble, this is Sydney, was the gist of the KPMG partner's address.

Speaking at RFi Group's Australian Mortgage Innovation Summit 2017 in Sydney this week, Salt hammered home the city’s globally unique characteristics, arguing “Sydney stands apart” after 25 years of “absolutely, compellingly powerful” housing momentum.

He added that Sydney is different to every other city on earth in that the proportion of the population born overseas is close to 45 per cent.

“It is, factually, the most cosmopolitan, developed city of scale on earth. The most changeable market on earth, the most complex consumer market on earth. It has an aspirational impact on the housing market," he explained.

Salt argued that these factors are now locked in thanks to an alignment of stars: a history of migration, of demographics, of connectivity and – crucially – lifestyle choices in the Asian century.

“China needs a lifestyle retreat in a safe, sovereign, secure, aspirational, growing, lifestyle-city. Like Sydney. This is not going to change as long as the regulatory environment permits it. Something is underpinning Sydney’s housing market on steroids,” he said, noting that Sydney in 2017 is now extraordinarily well-connected into China.

“Make your money in Beijing … an overnight flight away, 8,000km’s away. This is not going to go away. Every wealth generating region on the planet for 100 years has had a lifestyle area nearby. In Russia, billionaires do not live in Moscow.”


International connectivity


Five direct flights have opened up to Sydney airport in Mascot from a major Chinese city in the last 12 months alone, including Wuhan and Xiamen.

Sydney is the most connected city on the Australian continent by a very long way, Salt added, with 50 global cities, including 16 in China all offering direct flights to Charles Kingsford Smith.

“International connectivity, a migrant flux, the proximity to China … it’s all converging on Sydney and this is expressed in the housing market. This trend of international players will not abate in my view," said Salt.

These are among the factors that sets Sydney apart from the rest of the country when it comes to affordability and the cost of housing, he continued.

Quoting ABS data that excludes new homes and apartments, the average price for separate, established houses in Sydney is almost $900,000. And over the last five years that has increased by a stand alone figure of 56 per cent.

“Melbourne’s up there at 25 per cent (Brisbane at 15 per cent is not unreasonable), but when you look at Sydney, this is chalk and cheese," Salt said. “When you consider the strategic, demographic, the ethnic, global connectivity driver to Sydney, it all seems to make sense."


Sydney’s million-dollar wall


Sydney, not Australia has an affordability issue, it’s a wall of million-dollar housing, Salt said.

“But there’s a wall in Sydney and its slowly moving out," he said. “Sydney could have a Manhattan zone from Balmain to Bondi - it’s not a nice big island - but effectively that’s the way it is. As long as we can contain social cohesion and aspiration, it’s going to continue on that trajectory.

“I touched on this with my 'smashed avocado' column. If there is an affordability issues, it not universal. It’s very patchy in fact and concentrated largely in Sydney.”

Salt sees the outward-reaching Sydney as “aspiration on a grand scale”, delivering confidence to middle Australia – “we change our homes, we bid up property values, we take out negatively geared property… whether this is right or wrong or good or bad, you can see this is a trend that is certainly gathering momentum.”

He further concluded that, “rightly or wrongly”, there will be a political response.

“When I look at the drivers for Sydney, I think they are absolutely, compellingly powerful. They’re not going to go away. Because this is a global city behaving very differently to the rest of the continent," he said.

“Sydney is off the scale."
Categories
Banking, Wealth,
Tags:
KPMG, Mortgage Summit
Author:
Christian Edwards, cedwards@financialpublications.com.au
Article Posted:
February 24, 2017

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