With the Australian property market officially in a state of hiatus due to rising interest rates and less than confident consumer sentiment, it’s no surprise that the luxury housing sector is predicted to suffer this year.
A recent report from Bloomberg, citing data from the Real Estate Institute of Australia, revealed that the amount of property listings worth more than $1 million increased by 40% more than average for the December 2010 period.
This has led many industry analysts to suggest that prices in the blue chip property sector could decline throughout 2011; a trend that began during the six months to September last year. According to RP Data, prices of the most expensive 10% of properties in Sydney fell by 7.5% during the period, while Melbourne’s top end house prices dropped by 10.8%.
Such declines were in stark contrast to the balance of the market in both Sydney and Melbourne, where average prices rose by 1.1% and 2.5% respectively for the six months to September 2010.
These downward movements are expected to continue throughout 2011, as nervous vendors are more willing to sell prior to auction, reducing their price expectations by as much as 15% in some instances.
The luxury home market is notoriously volatile and generally one of the first sectors of real estate to take a hit during cyclic downturns.
According to RP Data economist Tim Lawless, Australia’s blue chip properties, “were once considered to be safe havens during a downturn. More recently, however, the premium housing sector has displayed a higher level of volatility.”
REIA president David Airey said of the property market in general, “There’s about a 5 percent gap in what sellers expect and what buyers are willing to pay. In the first and second quarters of 2011, there will be a rise in activity as sellers adjust prices down.”
The lag between vendor expectation and buyer sentiment, along with flagging demand for homes between $2 million and $5 million, are just a couple of reasons for the recent glut of top end properties on the market.
Additionally, there are anecdotal reports from various agents that professionals such as investment bankers, lawyers and accountants – who generally make up the buyer demographic or this sector – are waiting to see what happens with the US and European economies.
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