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Luxury housing feels the pinch from property slowdown

Traditionally, when we enter the slower phase of the property cycle, the first sector of the housing market to feel the pinch is high end, luxury homes.

Some of Australia’s most expensive suburbs see values slide faster than the less pricey sectors when the market goes off the boil. And that’s exactly what happening at the moment.

According to a report in The Australian, prices for top end houses have fallen by as much as 20 per cent in some areas since January, with high end suburbs dragging down capital city property values across the nation by 1.2 per cent for the three months to April.

Figures from RP Data-Rismark Hedonic Home Value Index reveal that while immediate changes in market values have seen an overall decline, it’s not all bad news. In fact between December 2008 and April this year, prices were up by 17.2 per cent across the combined capital cities.

Now though, the focus is on the most elite areas across the country, where some hefty falls have occurred over the year ending April. According to RP Data’s research director Tim Lawless, Brisbane’s most expensive homes decreased in value by 10.1 per cent over the period, while in Perth they dropped by 12.1 per cent.

In the top 20 per cent most expensive suburbs overall values fell by 5.4 per cent, compared to a slide in prices of just 0.9 per cent in the middle of the market and a mere 0.5 per cent in the bottom 20 per cent.

The research looked at top end suburbs with a median price of $1.2 million in Sydney, $950,000 plus in Melbourne and Perth and more than $750,000 in Brisbane.

So why has this sector copped the brunt of the property market slowdown?

Surely home owners in these exclusive areas are not struggling to meet their mortgage repayments?

Rather than the problem lying in affordability for these suburbs, Lawless says the price falls we’re seeing at the moment are largely due to the fact that capital gains in the luxury market were particularly strong prior to the global financial crisis.

Other experts suggest demand in this sector has slowed significantly due to people downsizing or simply avoiding taking on larger mortgages.

Lawless says that Melbourne could be the next city to experience softening in the luxury market given that it increased by a massive 25 per cent in the 18 months to June last year.

While the Gold Coast continues to lose its glimmer with prices falling by as much as 50 per cent in what has been described by some experts as “the toughest market” in Australia.

Chief executive of Ray White in Queensland, Peter Camphin said top-end Brisbane houses had been discounted by about 15 per cent since the beginning of the year, with riverfront properties the hardest hit since the January floods.

None of this is particularly surprising given that affordability is such a talked about issue right now for our property markets and there is still uncertainty as to where interest rates will end up in the coming months.

The fact that people are unwilling to extend themselves too far to buy their own little piece of luxury in a top end suburb is to be expected. You don’t really need that trophy $4 million home when a $3million home will do.

But I don’t think we have to start feeling sorry for owners of million dollar plus homes just yet, because I’ve seen this sector fall before and it gets back up again during the upturn phase of the real estate cycle with relative ease.



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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 his opinions are regularly featured in the media. Visit Metropole.com.au


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