_The rise of luxury property in Australia
The impact of the global financial crisis was felt amongst many wealthy individuals and businesses around the world. However, given Australia was amid a natural resources boom it was left relatively unscathed. In fact, looking back, there was only a small dent made in the past 27 years of consecutive economic growth which averaged 2.6% per annum.
As a result, Australia’s wealth continued to grow. The number of Australian ultra-high-net-worth individuals (UHNWIs) grew 12% over the past five years, to total 3,062 people with a net worth of over US$30 million excluding their primary residence, according to GlobalData WealthInsight.
The global population has become more mobile according to the Knight Frank Wealth Report Attitudes Survey 2019. Famed for the lifestyle, Australia was the fourth most-preferred global destination for UNWHIs planning to emigrate, behind the United States, United Kingdom and Canada. When this question was asked of the ultra-wealthy living in Asia, 48% saw Australia as their first choice to emigrate, ahead of all countries.
Almost 32% of total wealth is allocated to the average 3.6 properties lived in as first and second homes for the global ultra-wealthy. A little over 20% purchased a new home outside of their country of residence in 2018 and another 22% plan another purchase in 2019/2020.
Globally, Australia is the third most preferred destination to buy luxury residential property in 2019, with strong interest from those in Malaysia, Singapore, China and South Africa.
Offshore demand for prime residential property in Sydney, has been met with increased competition from local buyers given the slow-paced delivery of new prestige residences. This is a growing issue with limited opportunities around the habour foreshore and many ultra-wealthy wanting to retain current ownership to expand their property portfolios. A pipeline of prime and super-prime projects is proposed over the next decade, but there has only been a handful of projects reaching construction stage, amplifying the limited supply going forward.
Ten years on from the global financial crisis, Sydney’s prime residential capital values have grown by a total 63.7% to Q1 2019. Melbourne followed a similar trajectory over this time, growing by a total 57.3%. Knight Frank defines prime property as the most desirable and expensive property in a given location, generally the top 5% of each market by value.
In early 2016, both Sydney and Melbourne recorded two quarters of consecutive double-digit annual growth. In Sydney, demand simply outstripped supply, while in Melbourne, strong population growth has been the primary driver.
Sydney and Melbourne’s prime capital growth had slowed to a more sustainable growth of 2.4% and 1.8%, respectively, in the year ending Q1 2019. This was influenced by passing local headwinds resulting in an unsettled tail end to 2018, and the start of 2019. Within the space of six months, both cities had held state elections, there was a federal election, as well as the results handed down from the banking royal commission. Although since the Coalition retained power on 18 May 2019, eliminating any proposed changes to negative gearing and capital gains tax, a positive sentiment has instantaneously rippled through the housing market.
Internationally, Australia often ranks high as a safe-haven investment opportunity. A country where it is easy to conduct business and provides transparency in ownership. For prime property, there is also the value proposition compared to other global cities, especially with the favourable currency play for offshore buyers.
Each quarter, Knight Frank analyses the number of internal square metres one could buy with US$1 million around the globe. It is not surprising Monaco tops the list each time and in Q1 2019, it does again with 16 sqm, followed by Hong Kong (22 sqm), London (30 sqm) and New York (32 sqm).
Despite recording significant growth over recent years in prestige homes, in Sydney, 52 sqm of internal space could still be purchased with US$1 million. Down in Melbourne, almost double the floor space could be purchased at 97 sqm. In Brisbane and the Gold Coast, this measure extends further to cover 123 sqm and 135 sqm luxury floor area, respectively. Over in Perth you could buy 117 sqm.
Another way to look at the attractiveness for an offshore buyer is by performance. For example, take a prime residential property purchased in Sydney. Over the year ending Q1 2019, this market grew by 2.4% to a buyer purchasing with Australian dollars. If one had considered buying with US dollars, purchasing power would mean this property price fell 6% over the course of the year. Despite the introduction of foreign investor fees in recent years, the currency play continues to drive global buyers in Australia.
Global and local buyers are both attracted to the Sydney waterfront and in 2018, these properties generated an average premium of 89.3% when compared to similar properties located further inland without access to water. Homeowners vie for the finest views of the Harbour Bridge and Opera House as it offers sprawling vistas of, and access to, one of the world’s most picturesque waterscapes.
Image: Shellcove Road, Neutral Bay, NSW
Gold Coast beachfront and Perth riverfront also registered some of the highest global uplifts for their waterfront properties, averaging 64.1% and 53.2% higher, respectively. The exclusive pockets of prestige residential in Melbourne are found in leafy suburbs such as Toorak, South Yarra and the St Kilda Road precinct. Within proximity to prestigious private schools but set-back several kilometres from the Yarra River, resulting in the riverfront uplift being 30.4%.
A relatively new residential concept to the Australian market, but growing exponentially globally, is the branded residences sector. Crown Residences at One Barangaroo in Sydney is the country’s first fully-integrated, six-star hotel branded residences. While the branded concept in the Sydney market is still embryonic, evidence shows that a premium of 25% to 35% can be achieved for a branded residences project ahead of a comparable non-branded product.
Image: Crown Residences at One Barangaroo, Sydney
Over the next five years, the Australian UHNW population is projected to grow by another 20%. During this period Sydney will record more than 1,000 ultra-wealthy people for the first time, reinforcing Australia’s requirement for luxury residential homes to accommodate the desires of this growing ultra-wealthy demand.
(*The properties do not appear in the Family Office magazine)