Simpson Desert

If you had a quarter acre block in the middle of the Simpson Desert I doubt that you could give it away, especially if the new owner had to pay rates on it.

This is a way of saying that real estate is only worth what people are prepared to pay for it. That is the value of real estate is entirely subject to supply and demand factors.

In Sydney right now a 300-1000 square meter block of land within 15 km of the CBD is worth at least $0.8-1.5m. Given that the average cost of building or replacing a house is $0.3-0.5m, this means that working professional couples spend $1-2m on a block of land and a house.

These working couples are prepared to mortgage themselves to the hilt whilst interest rates are low, and roughly speaking $2m seems to be the natural limit of affordability for two professional incomes. Low interest, interest repayments only, 30 year terms, up to 70% of all income on loan repayments; it’s all very tenuous. And they then become asset/loan rich and cash poor.

They don’t want to go too far out from the CBD because that would mean excessive travel times and hence the focus on that 15km range where there actually is public transport or other feasible options.

Its odd, if you get to $3m you often get more than twice the ‘value’ of a $2m house and land, i.e. more than twice the area of land and house. At $3m you are in a much less competitive market.