Luxury homes now ‘critical asset’ for Australia’s wealthy

This article was originally published by The Australian Financial Review on 18 July, 2024 by author Bonnie Campbell.

 

Prestige property is playing an unprecedented role in the finances of Australia’s wealthiest individuals, who now consider blue-chip residential real estate a critical asset class, according a new report.

 

Westpac Private Bank’s inaugural Prestige Property Report has examined the explosion of properties trading above the $5 million mark. Their numbers have more than doubled since 2019.

 

That growth is part of a longer-term trend in which the number of property sales above $5 million has surged 1,151 per cent in the two decades to 2023.

 

Tim Lawless, executive research director of CoreLogic Asia-Pacific, said that despite the past few years of global uncertainty, the demand for prestige property had remained strong.

 

‘‘The report shows the ongoing strength of the prestige property market in Australia, especially relative to pre-pandemic levels,’’ Mr Lawless said. ‘‘Over the 20 years to 2023, the number of homes selling for $5 million or more has increased 12-fold.’’ According to CoreLogic, the number of homes selling for more than $5 million rocketed 240 per cent during a peak growth phase between 2019 and 2021.

 

This explosive growth steadied last year, when the number of sales executing for $5 million or more dropped to 2,927, down from 2021’s peak of 3,845. However, the number of sales in this category was still up 159 per cent between 2019 and 2023.

 

While prices have risen broadly in the housing market, the prestige sector has outshone the rest. CoreLogic’s national Home Value Index recorded an increase of 24.5 per cent in 2021, but the strongest-performing sector was the upper quartile of house values, which lifted 30 per cent.

In a class of its own

Westpac Private Bank managing director Ashley Stewart said the top tier of Australian property now operated less as a traditional bellwether for the rest of the country’s housing market and increasingly within its own protected sphere.

 

‘‘Prestige property has proven less vulnerable to economic shocks,’’ Mr Stewart said.

 

One reason for this was the high proportion of cash buyers among wealthy individuals, minimising exposure to interest rate fluctuations.

 

‘‘The reality is for high-net-worth clients, their purchasing decisions have been less susceptible to rising interest rates and macroeconomic factors than has been the case for the broader market,’’ Mr Stewart said.

 

 

Pandemic-era supply chain disruptions, increased construction costs and overseas migration had all exacerbated existing demand for the already scarce resource of well-located designer homes.

 

‘‘Supply and demand is out of balance in terms of the construction industry’s ability to absorb the demand we are seeing in terms of prestige property,’’ Mr Stewart said.

 

Add to that the post-pandemic premium placed on lifestyle factors such as proximity to water and nature, health and wellbeing features, working from home and intergenerational living, and luxury property has arguably never been so important to wealthy Australians.

 

This scarcity is set to underpin long term demand – particularly for freestanding houses within a 10-kilometre radius of a capital city, and particularly those near water and with water views.

 

Waterfront remained the No.1 characteristic of prestige property in Sydney, with 23 of the top 30 suburbs with the most $5 million-plus sales located by the water.

Mosman top spot

Sydney was home to the lion’s share of expensive properties sold in 2023, recording almost two-thirds – 66.5 per cent – of the country’s $5 million-plus sales.

 

Mosman, on Sydney’s lower north shore, notched the highest number of pricey property sales in Australia last year, with the prestigious suburb clocking 140 sales above $5 million.

 

However, at the extremely pointy end of the market, Bellevue Hill in Sydney’s east clocked the most transactions over $20 million. The blue-chip suburb known for large compounds and water views recorded 12 sales in this nosebleed price territory in 2023.

 

Unsurprisingly, Melbourne’s Toorak was home to the highest number of expensive property sales in Victoria last year, recording 48 sales over $5 million.

 

Noosaville was the only Queensland suburb to make the top 30, recording 22 sales over $5 million in 2023.