Prime property performs as wider prices plunge

Prime property performs as wider prices plunge

Mon, 13/08/2018 - 11:09
Sydney homes

PERFORMING Luxury properties in Sydney recorded capital growth of 8.7 per cent in 2017, at the same time median prices were winding back in the wider property market. Photo: Shutterstock

Australia remains a land of opportunity for international property investors despite price plunges across the country, as prestige homes continue to provide growth prospects in key locations for foreign buyers.

Fresh figures indicate capital growth across Australia’s biggest housing markets – Sydney and Melbourne – all but screeched to a halt in the first six months of 2018, ending more than 10 years of sustained price rises.

Market analysts CoreLogic said last month median home values in Sydney were down 4.5 per cent compared with June last year, the most significant decline since 2008.

Annual price increases in Melbourne and Brisbane have also dropped to about 1 per cent, down from double-digit growth in 2017.

In Perth, CoreLogic said median prices fell by 2.1 per cent over the 12 months to the end of June.

Prices have taken a hit because of a convergence of factors limiting demand – new fees on foreign purchases, tighter lending criteria and new regulations restricting capital outflows for Chinese investors.

While the latest data from the Foreign Investment Review Board showed China was the leading country for Australian property purchases in 2016-17, that investment fell by more than half of the previous financial year’s value to $15.3 billion.

The weakness across Australian markets has prompted institutional investors such as hedge fund Totus Capital to shift assets out of the country, anticipating the housing slowdown would increase downward pressure on the Australian dollar.

But at the same time that wider markets are falling, and investors are pulling out, the value of prestige properties has continued to climb in Australia’s major cities.

Knight Frank’s Australian Prime Residential Review, which analysed the top 5 per cent of each market by value, revealed that Sydney recorded capital growth of 8.7 per cent in prestige properties in the year to March 31, contributing to a rise of 61.7 per cent since March 2008.

Melbourne’s prime property annual growth was 8.3 per cent in the year to March 2018, ranked globally as the 10th best-performing city and contributing to 10-year growth of 60 per cent.

In Perth, prime properties achieved capital growth of 2.8 per cent between the first quarter of 2017 and the first three months of this year.

Knight Frank described 2017 as an exceptional year for prime property, with 371 transactions each valued at more than $3 million – a 29.3 per cent rise on the previous year.

In the first quarter of 2018, the total number of prime sales in Perth equalled 29 per cent of the total achieved in 2017, indicating another strong year of transactions was under way.

Overall, the Knight Frank report showed that Australia’s prime residential market was likely to remain in the top five destinations where ultra-high net worth individuals were keen to invest, with the demand coming from China, Malaysia, Singapore and Hong Kong.

In 2017, the number of ultra-rich people in Australia grew by 9 per cent, reaching 1,260 with a collective net worth of $US269 billion ($365 billion).

Globally, around 23 per cent of ultra-high net worth individuals plan to buy a residential property outside of their home country in 2018.

Australian residential property remains an attractive proposition for these investors, despite recent weakness, measured by the amount of housing space an investor can buy with $US1 million.

In Monaco, $US1 million buys 15 square metres of living space, compared with 22sqm in Hong Kong and 25sqm in New York City.

In Sydney, that same amount buys 49sqm, while Melbourne luxury homes offer a rate of 91sqm per $US1 million.

Brisbane and Perth offer an even better value proposition, with $US1 million offering 117sqm and 126sqm of luxury floor area, respectively.

“The Australian prime residential market has, and continues to, travel at a different pace to the mainstream housing market with quite diverse key drivers across the country,” Knight Frank director of residential research, Michelle Ciesielski, said.

“The base of prime property demand follows wealth trends, rather than the dependence on growth in income for mainstream residential markets.

“Over the past 10 years, prime markets have performed well, but with a more gradual capital growth than experienced in the mainstream markets.

“Not growing as far in the first place, there is still solid growth being recorded in the prime residential markets at a time when mainstream is cooling, as seen in Sydney and Melbourne.”