Why Sydney?

Sprawling from the mouth of Sydney Harbour to the Blue Mountains about 50km to the west, the city is Australia’s largest metropolis, its financial hub, and a melting pot that successfully brings together many different cultures. It attracts ­people from all parts of the socio-economic spectrum, with the more wealthy crowding the eastern suburbs or the many quiet coves that line the harbour.

Known as the gateway to Australia, Sydney is the country’s global city, where competition for housing can be fierce. Housing there thus commands a premium over other capitals.

To be sure, much of what is happening in Sydney is just catch-up after an extended period of inactivity from 2004 onward.

Through that time, a once-in-a-century resources boom flared, shifting resources and capital towards the iron ore and gas projects in Western Australia. Perth house prices shot up to rival Sydney’s. Indeed, Sydney and Perth prices were nearly on par in 2007.

With the end of the boom times, the traditional east-west house price divide is now being restored. Sydney is back on top as Perth struggles amid a collapse in the iron ore price this week to 10-year lows, while new investment is drying up as China’s economy slows.

So a lot of what is happening in the national property market makes sense. In some ways it’s a return to normality, and thus should be viewed as something less sinister than a monster threatening to crash the economy. Add in record low interest rates, a falling Australian dollar, and a desire of wealthy Chinese to locate families near Sydney’s better schools and colleges, and you get market pressure and rising ­prices in the country’s oldest city.

“Outside of Sydney, there really isn’t any house price growth,” said Adam Boyton, chief economist at Deutsche Bank Australia.

“For 10 years after 2004, Sydney house prices underperformed inflation. If you bought a house there at the last peak in 2004, you only made your money back after inflation some time last year,” he added.