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Premium Property: Worth the Price? - January 2022

By Guest Blogger, Leanne Pilkington, CEO,

Laing & Simmons and President REINSW

 

The supply surge unleashed at the end of lockdown has had a profound and expected result. The huge spikes in price growth experienced through the pandemic have cooled to a somewhat more sustainable level, and property buyers are once more feeling empowered by choice. 

However, prestige residential properties in prime locations seem to be the outlier, with demand for such properties still robust and the prices achieved still eye-catching. This month, Laing+Simmons CEO Leanne Pilkington looks at why the premium property market appears to be more resilient than other price segments in the current climate. 

No investment is risk-free but if you consider what typically drives a premium property purchase, it’s lifestyle. This includes location and if you think about the premium markets in Sydney, and across the country, there’s typically a geographic reason for properties in those areas to be consistently desirable. 

The Eastern Suburbs and Northern Beaches have the coastline; the North Shore has the harbour. Each conjures visions of sunshine, relaxation, natural beauty. Plus, there are only so many properties which can physically occupy these landlocked postcodes. This puts a finite limit on supply. 

Luxury apartments aside, prestige residential typically means the family home. Prestige markets are tightly held, properties are held for the long-term, and if a property asset is held for long enough, capital growth is as safe a bet as any investment out there. 

When these properties do become available, competition is intense, and we’re certainly seeing that play out in the current market. Where prices in other segments have cooled, prestige residential remains on a steady upward trajectory. 

Auctioneers are reporting softening interest generally, across suburban markets and different property types, with the exception being top-end properties in blue-chip areas. 

Generalising can be dangerous, but it’s fair to say that the greatest risks in buying prestige residential property are probably in the purchaser’s own financial circumstances as opposed to the asset itself. 

What constitutes a good investment must necessarily be tied to the purchaser’s individual circumstances. Obviously, servicing a multi-million-dollar mortgage requires a large deposit, a high income and secure employment. This points to why prestige properties are less likely to be flipped. 

If we accept that lifestyle is the main driver for buyers of premium properties, the expectation of capital appreciation will still be there, but the timeframe for this to materialise is perhaps more flexible. It usually won’t matter to such buyers – or at least, it won’t matter as much – how values shift in short-term stints. 

Most will have made the purchase because that’s where they see themselves long-term, perhaps in their ‘forever home’. There’s confidence that capital growth will inevitably come. Historically, this confidence is warranted. It’s why available properties in these prestige markets are often marketed as ‘once in a lifetime’ opportunities.


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