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The suburbs where luxury property has outperformed the strongest in the last 10 years - featured image
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The suburbs where luxury property has outperformed the strongest in the last 10 years

key takeaways

Key takeaways

Luxury houses have seen strong price growth over the past decade compared to the median property on the market.

In Sydney, luxury houses in Leichhardt, inner city and Pittwater areas increased 228% and 253% respectively - 30% higher than the average houses over the past decade.

Luxury unit prices have outperformed the fastest in Sydney's eastern suburbs, where double bay, Bellevue Hill, Bronte and Tamarama have seen values triple over the past 10 years.

While luxury homes have outperformed, they have also exhibited a lot more volatility in price growth. Timing the purchase of a luxury home is therefore much more important.

Australia’s luxury property market has significantly outperformed over the past 10 years and will likely continue its strong trajectory going forward, new data reveals.

Ray White’s recent economic update reveals that median-priced houses increased 78% over the past 10 years while luxury property - houses valued in the top 5% - doubled in value over the same period.

Price Growth Luxury Vs Regular Houses

The suburbs where luxury house prices have outperformed the fastest

Premium houses in inner Brisbane, inner west, inner east and inner north posted the fastest rate of growth nationwide compared to median-priced houses over the past decade.

Areas Where Premium Home Values Rose Faster

House prices for the top 5% of homes in inner Brisbane, which includes New Farm, Paddington and Spring Hill, rose by 225% - 38% higher than the 188% growth recorded for average houses in these areas, the AFR reports.

In Brisbane’s inner west, luxury houses rose 231% - 36.1% higher than median-priced houses in the same area and 34% higher than in the inner east.

Meanwhile, in Sydney, luxury houses in Leichhardt, inner city and Pittwater areas increased 228% and 253% respectively - 30% higher than the average houses over the past decade.

Over in Sydney’s infamous eastern suburbs, the price gains were just as impressive.

Houses in the affluent suburbs of Vaucluse, Rose Bay, Darling Point and Point Piper increased 219% - this translates to an outperformance of as much as $3 million versus the median-priced house in these suburbs.

Further south, Melbourne’s affluent suburbs of Stonnington West and East, Bayside and Boroondara districts outperformed regular-priced houses by up to 25% or $1.8 million over the 10-year time period.

Luxury units are also outperforming

It’s not just houses that have seen stronger price growth over the past decade compared to the median property on the market, luxury apartments are also performing strongly.

Price Growth Luxury Vs Regular Apartments

Historically, many apartments in Australia were built for people that could not afford a house and traditionally they were used as a stepping stone to get into the housing market.

But now, Conisbee explained, there is growing demand for luxury apartments and the gap between the median and the most expensive has grown as quality has improved.

“[This shows] a switch in the way that wealthy people want to live,” she said.

The suburbs where luxury unit prices have outperformed the fastest

The suburbs for outperforming luxury units are mostly located in Sydney’s eastern suburbs - Double Bay, Bellevue Hill, Bronte and Tamarama - which have all seen values triple over the past 10 years versus the 154% increase for the average unit in these suburbs.

Areas Where Premium Unit Values Rose Faster

Premium units in North Sydney and Mosman have also tripled versus the 165% increase for median-priced units in those suburbs.

What has driven luxury property values to double?

Price growth in the luxury property market is largely down to three key factors: land value, renovation and a higher concentration of wealth in those households, the report explains.

Property in some of our most expensive suburbs, which tend to be located close to beaches, bays and rivers, experience strong price growth due to the land value of those areas.

Meanwhile, properties on land with more unique characteristics that are hard to replicate, such as a view or proximity to water, are likely to have increased at an even higher rate over the 10-year period.

The renovation trend, which surged during and immediately after the pandemic, is another driver of luxury house price growth.

“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,” Nerida Conisbee, chief economist at Ray White and author of the report, said.

Meanwhile, 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 - and much of this wealth has been invested in luxury homes around Australia which has also contributed to increased prices in this segment of the market.

But it’s not all sunshine and rainbows…

Conisbee also warned that while luxury homes have outperformed, they have also exhibited a lot more volatility in price growth.

“During the pandemic, they increased far more than more affordable properties. But they also saw a much greater decline in 2022.”

She added that, as a result, timing the purchase of a luxury home appears far more important than it does for buying one closer to the median.

Will luxury property price growth continue to outperform?

The Federal Government Housing Accord seeks to build more homes within established suburbs in order to try to help our ongoing housing and rental crisis.

But it is likely that most of them won’t be built in our most expensive suburbs, Conisbee said.

“Owning a luxury house or apartment in our most expensive suburbs is set to continue to be a solid investment over the next decade, providing of course you can afford to buy one in the first place.”

The lesson: Don’t focus on bargains, they rarely have a future

In today’s informed market, there are very few bargains.

Properties that no one else wants today will probably be the type of property that no one else will want in 5 years’ time.

Price is what you pay, value is what you get; so buy the best property you can afford — the type of property you’d still be happy to own in 10 to 15 years’ time.

As you can see from the data above, both luxury houses and apartments have outperformed the averages over the last decade and both are set to continue gaining in value strongly going forwards.

I’ve always advocated investing in areas where more affluent people live and wages growth is higher than the state averages, however, 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.

About Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.
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