Australia's Luxury Property Market Is Slowing Rapidly?

Australia's Luxury Property Market Is Slowing Rapidly? Manish Khanna
Manish Khanna
Monday 09 Jul 2018

Australia has always been on the radar of luxury property investors because of its naturally abundant settings and ultra-luxe facades. The multi-million dollar residential homes built in the burgeoning cities of Sydney and Melbourne in the last decade have changed the face of the property market in the country. The high demand from Asian investors coupled with the desire for trophy homes among the crème de la crème of the society has managed to bring about a massive boom in the segment. The industry saw a major breakthrough in the year 2010 when the prices of residential properties increased by 123%.

According to the Reserve Bank of Australia, the prices of housing properties have steadily increased on an average by 7.25% per year during the past 30 years. The low levels of interest rate, growing urban population, enhanced incomes, stable economy, and development of new projects have all contributed to the growth of the sector which encompasses the luxury real estate for sale in Australia. The boom in trophy homes began towards 2008 when the global wealthy became more affluent and got interested in accumulating hard and physical assets. However, in the last few months, the speculations related to the bursting of the real estate bubble have gained momentum with a slowdown seen in the premium property sector. 

The central reason for a break in the speed of this mushrooming domain has been the recent tax laws introduced by some of the major states. Foreign investors, primarily Chinese traders, have taken a step back from going all out in the million dollar real estate market. While Victoria raised the stamp duty for foreign buyers in the year 2015, NSW followed suit and doubled the stamp duty for foreigners as well as increased the land tax surcharge last year. The federal government has also brought in various measures to curtail foreign investment in Australian property, and there is amplified scrutiny of money laundering taking place through real estate deals. Consequently, the buyers are now heading towards other hot markets like Asia and the UK.

According to the Population Research Institute, the densely populated cities of Sydney and Melbourne are witnessing an oversupply of high-rise apartments which is adding to the woes of the sector in some ways. The current fiscal year has also seen the real estate agents facing a big-time challenge while trying to sell the most extravagant homes in the country. A recent report states that the prices of luxury real estate properties have dropped by 1.1% on average across Australia. The property market is cooling after witnessing an enormous surge in growth over the past few years. The brunt of the slowdown is being borne by the premium segment properties with a rapid fall in their value growth. The prices of these opulent residences were the first one to soar when the market prices were showing an upward trend. However, it should not be a cause of worry for people planning to invest in luxury property in Australia and here is the reason why:   

1.    It is Restricted to a Few Cities

The factors affecting this particular sector are the forces playing out in the cities of Sydney and Melbourne as they are home to most of the high-end properties. It is not a nation-wide phenomenon. In fact, the prices in Brisbane and Adelaide have increased in the last year and other locations are priced higher than their selling price a year ago. The top 25% of residences generated an increase in value of 1.6% in Melbourne while Perth recorded a drop of 2.4%. Thus, the slowdown has not affected the country on the whole, instead affected a few pockets.   

 2.    It Has Happened in the Past

Some experts opine that it is a short-lived downturn which is not something new. In fact, it has been witnessed many times earlier. Morgan Stanley has reported that there have been six such slowdowns in the history of Australian property market during the last 45 years. These downturns ranged somewhere between five per cent or more, and the recent two were witnesses in the last decade itself.

 3.    Supply and Demand Disparity

With the rising population of working professionals in the metropolitan cities, the demand for mansions for sale in Australia is increasing. These cash-rich, double-income households are in need of upscale abodes whose supply is apparently not enough to suffice for the rapidly escalating migrant population. Additionally, Sydney is witnessing an oversupply of such residences which are not able to find buyers. There is an apparent disparity, but the population explosion is the main reason behind it.      

 4.    Loan Debts are Low

The sector has not come crashing down because the interest rates on the loans have been low and those who have taken these loans are in a good financial condition to repay them. Though some reports say that the mortgage stress has increased, the numbers reveal that the bad debts are quite low in the country. The government is planning to raise the rates next years, but it will be done gradually so that the households are not burdened, and the inflation is kept in check.   

 5.    The Economic Factors are Stable

For the luxury real estate sector to collapse, there has to be an average fall of 20% or more in the prices which is not the case. Also, all the other economic factors are looking up which do not indicate any breakdown. Majority of the population is employed, and the interest rates are low. Plus, there is no massive oversupply of housing properties, and recession is not in the picture anywhere.   

Endnote

These minor hiccups are not going to crash the market as being feared by some of the cynical investors. The country is still a safe haven for high-rise buildings with lavish abodes. The growing population will keep pace with the supply. However, it is recommended for investors to look for cities other than Sydney and Melbourne for putting in their money as they are facing a saturation level lately. The best bet would be to look for inner-city areas and other popular cities such as Brisbane or Adelaide.