_Smaller cities outrank major capitals for prime luxury residential price growth in Australia

The PIRI 100, which tracks the movement of luxury residential prices across the world’s top 100 residential markets, found five Australian cities – Perth, the Gold Coast, Brisbane, Sydney and Melbourne - were ranked in the top 65 for luxury residential market performance over the past year.

But it was the smaller cities of Perth, the Gold Coast and Brisbane that were the strongest performing, recording annual price growth greater than the global average of 1.9%.

Perth was the top ranked city in Australia, coming in at number 34 with 3.6% annual growth, up from 0.9% one year earlier, when it was ranked 63 – and the last Australian ranked city.

The Gold Coast was second at 36 (with annual growth of 3.2%), followed by Brisbane at 44 (2.5% growth).

Sydney was ranked 56 (1.1%), while Melbourne came in at equal 63 with Oslo (0.9%).

Knight Frank’s Head of Residential Research Australia Michelle Ciesielski said Australia’s performance in the context of the global market was very positive.

“Globally, prime residential prices performed better than expected in 2020, with markets having to weather the global pandemic and associated economic turmoil.

“The PIRI 100 recorded annual growth of 1.9 per cent, marginally higher than the 1.8 per cent it recorded the year prior, but in countries around the world there were mixed results.

“In 2020, 29 per cent of locations saw prices decline year-on-year, up from 21 per cent in 2019, however five markets also registered double-digit price growth in 2020, compared with just two the previous year.

“Australia’s luxury residential property market fared well, with three of the five cities included in the PIRI 100 recording growth greater than the global average, and in the case of Perth, nearly doubling it.

“COVID-19 was handled well in Australia, with a brief lockdown in all cities except for Melbourne, and when our cities were opened up we saw a surge in pent-up demand, particularly as homeowners re-evaluated their lifestyles.

“Grounded by travel bans, Australia’s luxury buyers focused on building their property portfolios at home, buoyed in part by the country’s bullish stock market and historically low interest rate environment.

“While Perth was Australia’s frontrunner for luxury residential price growth over 2020, Sydney recorded its highest volume of prime sales ever in the third quarter of last year and preliminary data is indicating the fourth quarter surpassed this.”

Knight Frank’s The Wealth Report 2021 found that Sydney accommodates approximately 27,500 prime luxury homes, which is just under half of those estimated in London (68,189), but three times more than Singapore (10,416).

Shayne Harris, National Head of Residential, Knight Frank said demand for luxury property in Australia would continue to be strong, boosted by the ongoing pandemic and the continuing return of expats.

“On average, 22 per cent of the wealth of Australian ultra-high-net-worth individuals is directly allocated to property for their principal and second homes where they and their families spend time, while on average 24 per cent is directly allocated to a property investment portfolio,” he said.

“The Knight Frank Attitudes Survey found that 15 per cent of Australian ultra-high-net-worths bought a new home in 2020, and 16 per cent plan to buy one this year.

“Australia’s ultra-wealthy are most likely to buy a new home locally, followed by purchasing a second home in the US, New Zealand, the UK then Israel, while ultra-high-net-worths from overseas list Australia as a number three destination behind the UK and the US.

“The attributes listed as most important for Australian ultra-high-net-worths purchasing a new home in 2021 include outdoor space and leisure facilities or amenities.”

Mr Harris said: “Property prices in Perth are coming off the back of several years of price decline, but recently population growth has improved with prospering mining activity and resilient commodity prices, and this has led to a strong rebound in the residential market.

“This rebound is across both the mainstream and luxury market, and with Perth being Australia’s fourth largest city, we believe it is undervalued for its population and growth will continue to be significant.

“The pandemic has forced many to retreat in the comfort of their home for the best part of 2020, so it’s not surprising prime property is becoming increasingly more attractive in destinations known for their lifestyles such as Perth, the Gold Coast and Brisbane.

“In Sydney, it’s the super-prime property market - those sales exceeding A$10 million - which is driving up the overall prime performance as we see our ultra-wealthy clients upgrading the family’s main residence and a buying new holiday homes as international travel is likely to remain subdued in the coming years.”

Ms Ciesielski said ongoing strong demand for luxury residential property in Australia would result in significant price growth this year, with some cities expected to see greater growth than 2020.

“Knight Frank’s The Wealth Report forecasts that luxury residential property prices in Perth, the Gold Coast and Sydney will rise by three per cent over 2021, while Brisbane will see growth of two per cent and Melbourne prices are expected to grow slightly more modestly at one per cent.

“Last year, demand for prime property was mostly domestic in nature apart from those expats on the move back to Australia.

“With the ultra-wealthy population in Australia increasing over the past year, much of this will be redirected back into expanding property portfolios over the coming year.

“It’s likely we’ll see more second homes in coastal or rural settings being purchased with better connections to the primary residence, and as we saw in 2020, the birth of the co-primary home with a priority for faster broadband capabilities.

“Lifestyle, wellness and wellbeing will shape most prime property buying decisions across all markets in Australia – with a many seeking green space – and luxury amenities.

“The drive for wellness and wellbeing heightened the appeal of waterfront homes in Sydney, creating a significant price premium in 2020.”

Ms Ciesielski said globally, relative values for prime property in Australia weakened over 2020 as a result of the strengthening Australian dollar.

“This resulted in the value for money being reduced, with US$1 million buying fewer square metres in each city than one year ago,” she said.

“This amount of money goes the furthest on the Gold Coast, where you can buy 126 square metres of luxury internal floor space, but it will buy you the least in Sydney, where you can get 45 square metres. In saying this, US$1 million in Sydney bought more than double what you could in both Monaco and Hong Kong at the end of 2020.”

Globally, the PIRI 100 also revealed:

• Auckland leads the index with average prices ending the year 18% higher. New Zealand’s handling of the COVID-19 crisis, its rapid economic recovery, ultra-low mortgage rates and a limited supply of quality stock were behind the surge.
• Asian cities occupy the next three rankings - Shenzhen (+13%), Seoul (+12%) and Manila (+10%). The speed at which some Asian cities, particularly Chinese Mainland markets, rebounded was the surprise trend of 2020.
• Australasia and North America were the top-performing regions in 2020, average annual growth of 4.9% and 6.3% respectively.
• Ten of the 11 North American markets tracked in the index sit within the top 20 rankings. Palm Beach was a key super-prime hotspot recording 20 sales above US$20m in 2020, up from 10 in 2019.
• 2020 marked a watershed moment for Vancouver. After three years of declining house prices – in part linked to higher taxes – its luxury market got a reboot with prices rising by 8%.
• The European prime property market was stop-start in 2020. Despite cities leading the results - Zurich (8%), Stockholm (6%) and Amsterdam (6%) – the focus of transactional activity from June onwards was firmly on coastal, rural or alpine resorts. Second home hotspots of Tuscany, Provence and the South of France saw successive bursts of activity each time lockdown rules eased.
• In the UK, an eight-week Spring shutdown during the nation’s traditional peak selling season saw London (-4%) playing catch-up over the summer. Once the property market was allowed to resume, a release of pent up demand boosted by a welcome stamp duty holiday buoyed the market.

For more information, contact:

Michelle Ciesielski
Head of Residential Research, Australia
Michelle.Ciesielski@au.knightfrank.com 
+61 414 694 220