Demand for Luxury Homes in Australia at an All-Time High As Prices Continue to Rise

Demand for luxury residential properties in Australia is at an all-time high, with favourable conditions set to keep the momentum going as prices continue to rise.

Knight Frank define prime (luxury) residential property as the most desirable and expensive property in a given location, generally defined as the top five per cent of each market by value.

For the second quarter in a row, Australia’s main cities experienced their greatest quarter of prime residential sales volume on record, with 1429 premium homes sold, with the Gold Coast leading the way with a 91 per cent annual sales turnover.

This sales record surpassed the previous high of 1224 premium houses sold in Q4 2020 by 17 per cent. It was also a significant 58 per cent rise from the previous year.

Despite significant demand for prime residential properties in Australia and prices rising 1.1 per cent in the first quarter of 2021, prime capital growth is below the worldwide average of 4.6 per cent per year, with Australia’s yearly growth totalling 2.9 per cent from March 2020 to March 2021.

Perth, Brisbane, and the Gold Coast topped Australia’s yearly growth with 4.1 per cent, 3.8 per cent, and 3.5 per cent, respectively, with Sydney (1.9 per cent) and Melbourne (0.4 per cent) following far behind.

The declining number of days a prime property remained on the market was additional evidence of the demand for premium homes, with the average days on market lowering to 119 days, almost a week fewer than the 124 days seen in the previous quarter.

The average days on market in Sydney and Melbourne are 86 and 97 days, respectively, however the rise in demand for premium homes in Perth has resulted in prime properties being advertised for 27 days fewer on average, the shortest of any Australian city.

“With many of Australia’s ultra-high-net-worth population currently planted on Australian soil, four of Australia’s major cities saw their second consecutive quarter of highest volume of prime residential sales on record,” Knight Frank head of residential research Michelle Ciesielski said.

“So far, the first quarter of 2021 has seen 42% of the total number of prime luxury residential property transactions recorded across all of 2020 so it’s likely we’ll see this astounding performance continue with more ultra-wealthy taking advantage of the low-interest lending environment.

“Underlying this pent-up demand, the prestige residential market tends to gain traction with a rallying stock market, so we’re likely to still see significant price growth on the horizon.”

New prime apartment prices are rose by 3.2 per cent in 2020, to an average of $25,500 per sqm across Australia, reflecting increased demand for these properties.

Sydney led the way with the greatest rise in new prime apartment prices with a 10.6 per cent growth in 2020, followed by the Gold Coast with 10 per cent growth.

By the end of 2021, Knight Frank Research predicts that prime prices would rise by at least three per cent in Sydney, Perth, and the Gold Coast, two per cent in Brisbane, and one per cent in Melbourne, indicating that Australia’s overall prime residential market will remain hot.

“Developers across the country are continuing to shift their focus towards boutique apartment developments which is addressing pent-up buyer demand, but these smaller projects result in less volume of prime apartments being built over the coming years,” Knight Frank head of residential Shayne Harris said.

“It’s still evident there are limited prestige listings across the country, with many keen buyers now making buying off-market transactions. Many prestige buyers focus on buying in the right location and remodel the home to suit their needs, especially with a focus on wellbeing and lifestyle and this has magnified over the past year.”

The ultra-high-net-worth population of Australia, which climbed by 10.9 per cent in 2020 to 3124 Australians, appears to be driving up demand and capacity for quality residential real estate in Australia. Over the next five years, this population, defined as an individual with a net worth of over US$30 million (A$39.9 million) is expected to rise by 3.8 per cent yearly.

Despite rising demand for prime residential properties, the pipeline for new prime construction remains stable, indicating a worrying tendency in relation to the sector’s growth.

The pipeline for premium flats and townhouses has shrunk in 2021, with just 15,550 units presently under construction, down 42 per cent from 2020. The number of these premium properties developed in 2020 was four per cent lower than in 2019, indicating that the pipeline is shrinking.

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