That's exactly what we did: bought a house in Melbourne because we planned for the kids. Lots of regrets later.
I would be fine with $1M house with roughly $500K mortgage in Sydney. With 50% LVR, you are doing much better than most of the people.
However, look at this:
- Are you sure you can maintain your income at 130K after the baby is born? Your wife might want to stay home above the 1 maternity leave. She may not want it now, but it is common to have a complete change of heart after the baby is born. Are you able to sustain your lifestyle and pay new mortgage with one one of you working?
- Insurance, maintenance and utilities are considerably higher for the house than an apartment. We actually paying about $200 per month more, and already spent about $10K in house maintenance. Mind you, the house was in a very good condition when we bought it. Still, some $$ here and there, it really adds up.
- Personally, my biggest regret was that by buying a house, we locked into a 1 hour commute to the CBD. Before baby, 1 hour commute each way was tolerable. After a baby, it became really, really bad. I had to switch jobs to a local one as I could not take it any more. DH still does it and it sucks. I have limit my career prospects to work locally as someone has to do child care drop-off/pick-ups and cook dinner. It would have been way easier if we lived in a smaller place closer to the CBD.
- Increased chores: more space to clean, decorate, and the worst of it all is garden maintenance. Boy, does the garden keep DH busy! Lawn moving, tree cutting, watering: about 3-5 hours weekly on average. DH enjoys that, but do you? Also, because DH does this work, he has less time to help with chores inside the house, so 90% the house work falls on me. Every Sunday morning, while cleaning three bathrooms instead of one, I wish I had my small low maintenance rental unit back! Where gardening was done by landlord, and cleaning inside by DH.
We moved where we are only because the in-laws are over the corner and they help with child care, which is very important to us. The area has no small units or apartments though, so we decided we might as well buy a large house to "grow" into it.
Would I do it again? No.