Based on market activity in the first half of the year, NAB’s Mark Browning identifies signs of strength in the variety and pricing of Australian prestige homes.
Zooming out from headline-grabbing sales in the $80m echelon, the broader narrative for upscale residential real estate in the first half of the year has been one of impressive strength. So says Mark Browning, head of property valuations for NAB, with reference to the sustained transaction volumes and above-reserve sale prices seen since January. “2023 ended up being a pretty good year for prime and super-prime residential sales given the wider context of interest rate hikes and consumer stress, and that momentum has only continued—even strengthening in some catchments,” he comments. “Beyond the perennial lifestyle appeal of postcodes like 3142 and 2028, we have the impetus of strong equity markets driving buyer activity as well as competition from offshore investors.”
Kay & Burton director Andrew Sahhar, agrees: “The luxury sector has maintained robust momentum into 2024, including a resurgence of generational estates changing hands. These historic homes tend to conclude with multiple parties vying to be the next custodians, which shows just how strong the appetite is in the $20m-plus segment.”
Geopolitical and economic turmoil overseas is increasing the appeal of Australia’s east coast for highly mobile global citizens, Browning suggests, with many reassessing snap decisions made about their living arrangements during the Covid era. He says: “The stream of high net worth expatriates returning to Australia continues its steady flow, and anecdotal reports indicate that people who have been waiting and watching for a couple of years have now reached a crystal-clear understanding of what and where will deliver them the best quality of life.”
This clarity of vision and unwillingness to settle for less than- perfect can cause mispriced properties to languish on the market longer than in recent years, he says, but it can also convert others into active buyers the moment that a true trophy home comes on the market. As such, the blue-chip neighbourhood of Toorak logged multiple sales in excess of $35m in the first few months of the year, including St Georges Road residence ‘Karum’ for around double its listed value a decade ago. Since the setting of a fresh Brighton benchmark in December (>$30m), suburb records have also been broken by sizeable margins in Elwood ($17m) and Camberwell ($13m). “Even the most eye-watering records can quickly become the new normal when you have interest coming from Asia, Europe and the US, as we do at the moment,” says Browning.
The biggest ticket of the half-year (reportedly $80-85m) went to Point Piper’s ‘Rockleigh’ in May, not long after a new suburb high of $30m was hit in Bondi. “There’s only so much harbourside to go around after all,” Browning notes, “and the resort-style quality that luxury buyers are chasing nowadays is in very short supply.”
BALANCING ACT
The fact that prohibitive construction costs and skills shortages are continuing to limit new residential projects from getting out of the ground means supply is unlikely to catch up to demand any time soon. Browning says: “Inventory and variety of luxury housing stock remains constrained and, with no clear catalyst in sight to resolve the issues that are slowing premium constructions as well as mainstream homebuilding, I don’t see that dynamic changing before 2030.”
The new-build pipeline is running slightly hotter for premium apartments, particularly in downsizer destinations such as the Gold Coast where developers promise refined waterfront living without the maintenance burden of a mansion. “Apartment prices are climbing in line with design ambition,” notes Browning. “It’ll be interesting to see if the 1000sqm Soul penthouse in Surfers Paradise, listed for $30m in early June, succeeds in setting a new record for Queensland apartments this year. Either way, such a listing points to the growing appeal of lock-and-leave homes with a level of amenity previously reserved for detached properties.”
As apartments get more spacious and high-spec, often accompanied by hotel-like facilities such as day spas and valet parking, they draw more interest from young professionals who travel frequently as well as empty nesters. “The improvement in design, service and privacy standards over the past decade has brought apartments on to the radar of high-end buyers with more diverse family arrangements and lifestyle priorities,” Browning adds.
At one end of the spectrum sit internationally marketed showpieces like the 1600sqm penthouse atop Crown Hotel in Sydney’s Barangaroo, which is being advertised for $90m this year after failing to secure a buyer at nine figures. At the other end are boutique heritage-enveloped developments such as Orchard Piper’s nine-residence Toorak Village, which celebrate local charm for those seeking a community-focused lifestyle. Sahhar says the rightsizing movement certainly persists among his Melbourne-based clients, with robust demand for house-sized apartments reflecting a preference for low-maintenance living.
OFF THE PACE
In the age-old tussle between Sydney and Melbourne, the harbour city has jumped ahead in terms of pricing levels for luxury property. Browning says: “We’re talking about the biggest gap between the two capitals that we’ve seen in a long time, though I expect that to narrow over the long term, but we’re also seeing greater investment in smaller capitals like Brisbane and coastal enclaves like Noosa Heads.” He suggests this is partly down to the ‘sun, surf, startup’ culture of Queensland’s prime residential hubs attracting buyers from the west coast of the US. Sahhar says this reflects a broader trend: “A new demographic of buyers, many with backgrounds in Silicon Valley and disruptive industries such as cryptocurrency, has injected fresh dynamism into the Australian market.”
In lifestyle locations like the Mornington Peninsula, meanwhile, land tax hikes brought in by the state government this year are disincentivising second-home ownership. Though the rising costs of running a holiday home makes is less likely that such markets will return to their pandemic peak, one need only look at median house prices in Rye and Blairgowrie (more than double what they were five years ago) or recent Portsea sales in the $15-30m range to see that year-round coastal living retains its sheen. Browning adds: “Considering the diverse reasons that people choose to invest in peninsula property, which includes some of the most aspirational homes in the country, I expect the additional taxation burden to have a stabilising effect rather than short-circuiting the market.”
THE WAITING GAME
While we expect the Reserve Bank’s cash rate to stay higher for longer, with NAB economists forecasting a cut in 2025, Browning asserts that a prevailing sense of optimism is poised to energise buyers who have been observing from the sidelines for an extended period. Highlighting the recent surge in investor mortgages to a two-year high as a positive indicator, he expects a resurgence in activity come spring; “While the performance of the share market holds greater significance for luxury home buyers and vendors than borrowing rates, even at a foundational level the prestige property market appears robust in the run-up to 2025.” Sahhar echoes this prediction that the ‘wealth effect’ triggered by easing inflation and stabilising interest rates will galvanise spending. “We expect more buyers and sellers to enter the market this spring as a result, providing an optimistic outlook for most sectors,” he says.
The information contained in this document is gathered from multiple sources believed to be reliable as of the end of June 2024 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this document. NAB Private Wealth is a division of National Australia Bank Limited ABN 12004 044 937 AFSL and Australian Credit Licence 230686.