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Australia’s luxury homes have outperformed the market - featured image
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Australia’s luxury homes have outperformed the market

key takeaways

Key takeaways

Over the past decade, luxury houses have experienced a far stronger rate of growth than the rest of the market.

And not surprisingly, the luxury apartment market has outperformed over the last decade as well.

A property expert predicts that luxury real estate markets are expected to outperform the rest of the residential sector this year, with more affordable suburbs expected to take a hit due to relatively high interest rates and the cost of living affecting this segment more.

Over the past decade, luxury houses have experienced a far stronger rate of growth than the rest of the market.

Median-priced houses have increased by 78 per cent.

In comparison, houses priced in the top five per cent have doubled.

A property in the top end of the market has been a good investment over the past decade and luxury real estate markets are expected to outperform the rest of the residential sector this year, with more affordable suburbs expected to take a hit due to relatively high interest rates and the cost of living affecting this segment more.

Fig01

Why has this occurred?

According to Nerida Conisbee, chief economist at Ray White:

“A big driver of luxury house price growth is simply land value.

There are only so many properties you can build in our most expensive suburbs, which tend to be located close to beaches, bays, and rivers.

Anything with even more unique characteristics that are hard to replicate, such as a view or close proximity to the water, are likely to have increased even further.”

Conisbee suggests another driver has been renovation activity, which surged during and immediately after the pandemic.

And while it is not possible to measure, it is likely a higher proportion of well-located luxury homes have been renovated than the rest of the market, and almost certainly true that more has been spent on them.

Conisbee explains,

“A greater concentration of wealth has also likely increased prices.

A recent report from Oxfam has found that the wealth of Australia’s richest people has increased at a rate of $1.5 million per hour since 2020.

A lot of this wealth has been invested in luxury homes around Australia.”

And not surprisingly, the luxury apartment market has outperformed over the last decade as well.

Fig02

However, Conisbee explains:

“Historically, the majority of apartments built in Australia have been aimed at people who could not afford a house.

 As such, many of them were seen as a stepping stone to buying a house.

Now there is growing demand for luxury apartments and the gap between the median and the most expensive has grown as quality has improved.”

So do luxury homes make good investments?

While I’ve always advocated investing in areas where more affluent people live and wages growth is higher than the state averages, the very top end of the market, the most luxurious of homes and apartments tend not to be great investments as this segment of the market is more volatile in price growth.

They tend to increase strongly during good economic times and full value decline during challenging economic times.

Luxury Home

Will this outperformance continue?

According to NAB research, the growth in the luxury property market is set to continue in 2024.

NAB economists explain:

“Looking back over 2023 reveals luxury properties continued to be highly sought after with new record prices being achieved, particularly on the east coast of the country.

It’s a trend expected to be repeated this year.

The strong prices being achieved in the luxury property market were and continue to be underpinned by the combination of a lack of supply, wider economic health, the return of wealthy purchasers from mainland China, and the appeal of Australia as a desirable destination.

Despite the higher interest rate environment persisting in 2023 with the potential of higher rates for longer, the luxury property buying cohort has been largely unaffected when compared to the broader market.

For wealthier individuals, higher interest rates can mean higher income, as often large sums are held in lower risk fixed income products as a means of preserving wealth and lowering the risk profile of a large, diversified investment portfolio.”

There is a window of opportunity at present for property investors.

There is no doubt the shortage of dwellings both for sale and for rent, at a time of skyrocketing population growth is going to continue this year.

And as buyers and sellers realise that we have reached a peak of interest rates and that inflation is coming under control and consumer confidence returns, buyer and seller activity will pick up.

So I currently see a window of opportunity to get into the property market before the crowd does.

If you look back at previous cycles, when the market turned property prices surged rapidly – look at what happened in the post-Covid property rebound in 2020 or in 2019 when the market suddenly turned after the Federal election.

Of course, those who acted then and purchased quality investment-grade properties are possibly of thousands of dollars ahead and have set themselves up for financial security.

The media are catching onto what’s happening and reporting more good news property stories.

This means the window of opportunity will close sooner rather than later as more homebuyers and investors into the market.

About Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
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