Why premium property is today’s hot real estate - SEPTEMBER 2018
By Guest Blogger, Peter Koulizos, property lecturer and author www.thepropertyprofessor.com.au
In our biggest cities, property markets are mostly cooling their heels after a long and fiery run – mostly, but not entirely.
Activity is slowing and prices are softening across the majority of sectors according to recognised analysts, apart from two standout exceptions.
Up front is first home buyers who’re finally finding their feet and confidence. After years of being locked out by intense competition from more cashed up and experienced purchases driving values to levels beyond their reach, first home buyers are now back in the game.
The other sector we’re homing in on is one that’s been continually firing on all six cylinders for some years – the moneyed end of town.
Prestige property has continued to set benchmarks despite jitters across the broader market.
Here’s why premium real estate feels like a perennial performer and why it can be a beacon of overall market movements if you know what to look for.
Supply and demand on steroids
For the most part, luxury real estate prices are driven by the two economic levers we’ve come to know and trust – supply and demand.
The difference is that in the premium sector, the drivers that command these levers are slightly separated from the broader market.
Put simply from the supply side, the number of lavish homes on the market is always low. After all, it’s rarefied air full of unique abodes. There’s only so much water frontage, beach front, huge land area or extraordinary views and exceptional design and fit out available for purchase at any given time.
Each luxury home will appeal (or not appeal) to potential owners in varied ways, but if you have deep pockets and a high price benchmark, your acceptable options are actually far narrower than for those looking at a more affordably priced real estate.
The people who own prime property don’t sell as often as other types of vendors. Once they’re in, they tend to stay for long periods of time and in many cases, the properties are held by families for generations.
New stock is incredibly hard to develop. Prestige areas don’t have a huge amount of available land, and so adding supply is often done by knocking down one big, beautiful home and replacing it with an even bigger and more beautiful one. So, you take one out and put one back in.
The demand lever also tends to have more consistent weight than other parts of the market, because these buyers often operate beyond financial restraints that would stop most other purchasers in their tracks. While mainstream buyers fret about the possibility of one or two interest rate rises or prices dips of a percentage point or two, those at the top-end are mostly immune from feeling the pinch of such movements.
Buyers in the high-end are more attuned to business and economic conditions – and right now it’s good to be one of those purchasers.
At present, Australia’s economy is performing pretty well. Business growth remains strong and share markets here and in key markets like the US and Asia are, frankly, booming.
While average Aussies are grappling with cost of living and reduced confidence, those active in the prestige part of the market don’t consider these things a huge impediment to purchasing.
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Luxury is not completely immune
One of the big growth drivers of the top end of the market in recent years has been an influx of cashed-up foreign buyers, and this is one element that’s softening.
You probably saw headlines about offshore investors, particularly from China, buying seriously blue-chip real estate in Sydney and Melbourne. These properties were both an opulent ‘home away from home’ in Australia, and a safe place to park cash.
But the government’s introduction of a foreign investor tax and a crackdown on non-residents buying established dwellings has seen a reduction in OS purchaser activity. Also, particularly for Chinese buyers, economic jitters at home have seen a more gun-shy attitude hit these types of investors.
The luxury housing market is impacted by a number of factors, and attractiveness to foreigners is just one of them.
For local investors, any downward movements in global share and cash markets, where a lot of wealthy potential buyers have investments, will also drive mid-term stability. But thankfully, both here and abroad, markets continue to perform well.
What lux property performance reveals
I once received a bit of travel advice. If you feel a big bump while on an aircraft, look at the flight attendant. If they look relaxed, you can be too but if you detect a whiff of panic, buckle up.
I think it’s similar for luxury real estate. It’s the canary in the coal mine – or the warning signal in property.
If there was a sudden and dramatic decline at the top-end, it could be a sign of set-in trouble in the broader market. It’s what happened in the wake of the GFC, when high-end buyers were hit hard and the homes they bought and sold saw some pretty dark days.
After that, markets as a whole across the country saw double-digit falls in values.
When the storm passed, you know which part of the market was the first to really recover? Yep – the top part.
There’s a lot of uncertainty about the short to mid-term prospects for property in Australia at the moment. Alarmist and unsubstantiated reporting isn’t helping things, with the same-old doomsayers out and about to tout their damning proficies.
In my view, there will be a continued softening in the general market. However, I reckon it’s more of a ‘return to normal’ than a crash and what we’re seeing now will settle soon enough.
If we look at today’s high-end property as a sign of what’s to come, then there’s some clouds with a chance of showers over the short term but much brighter days ahead.
Of course, this all means if you’re in the market for lux real estate, you really need to lean on experienced, well-connected professionals who can secure you the perfect home at the right price. The majority of what we find is “off-market” and never listed. Don’t go solo on this flight – call us and we’ll save you precious time and money while securing your dream abode.
Peter Koulizos, property lecturer and author – www.thepropertyprofessor.com.au