_Demand for prime residential properties in Australia at an all-time high
In the first quarter of 2021, for the second consecutive quarter, Australia’s major cities saw their highest quarter of prime residential sales volume on record at 1,429 prime properties, with the Gold Coast leading the way with annual sales turnover at 91%. This sales record was 17% ahead of the previous high of 1,224 prime properties sold in Q4 2020. It was also a major 58% increase over the past year.
The demand for prime properties was further evident in the decreasing number of days a prime property was on the market, with this number compressing by almost a week, with the average days on market dropping to 119 days, almost a week less than the 124 days from the prior quarter. Sydney and Melbourne lead Australian cities for average days on market with 86 and 97 days respectively, though the surge in demand for prime properties in Perth has seen its prime properties marketed for 27 days less on average, the most compression across Australia. This trend indicated that there’s more steam in the prestige market ahead.
Prime (luxury) residential property is defined as the most desirable and expensive property in a given location, generally defined as the top 5% of each market by value. Generally, ultra-high-net-worth individuals are responsible for the purchase of this category of real estate, being an individual with a net worth of over US$30 million. The increased level of demand, and capacity for, prime residential real estate in Australia looks to continue to grow with the ultra-high-net-worth population of Australia, which grew by 10.9% in 2020, to 3,124 Australians. This population is forecast to continue to grow annually by 3.8% over the next five years.
Aside from the growth in the ultra-high-net-worth population of Australia, conditions in the Australian market contributing to the growth in demand for prime residential property include a strong stock market over the past year, solid business conditions and a forecast growth in private investment.
Knight Frank’s Head of Residential Research, Michelle Ciesielski said: “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.
“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,” Ms Ciesielski said.
The growth in price of new prime apartments further reflects the increasing demand for these properties, growing by 3.2% in 2020 to an indicative $25,500 per sqm across Australia. Sydney led the way with the greatest rise in new prime apartment prices with a 10.6% growth in 2020, followed by the Gold Coast with 10% growth. The heat in Australia’s overall prime residential market won’t be slowing anytime soon, with Knight Frank Research forecasting prime prices to increase by a minimum 3% in Sydney, Perth and Gold Coast, 2% in Brisbane and 1% in Melbourne by the end of 2021.
Commenting on the Australian Prime Residential Review 2021, Shayne Harris, Knight Frank’s Head of Residential said: “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.
“Given the upward trend in sales volume over the past quarter, the number of days an established Australian prime property is listed on market has reduced by almost a week.”
“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,” Mr Harris said.
Though demand for prime residential properties has been exceptionally high in Australia, prime capital growth is trending below the global average of 4.6% annual growth, with Australia’s annual growth from March 2020 to March 2021 totalling 2.9%. Australia’s prime annual growth was led by Perth at 4.1%, Brisbane at 3.8% and the Gold Coast at 3.5%, with Sydney (1.9%) and Melbourne (0.4%) trailing well behind.
Despite the surging demand for prime residential properties, the pipeline for new prime development is relatively steady, showing a concerning trend relative to the increase in this real estate sector. In 2021 the pipeline for prime apartments and townhouses has plummeted, with 42% fewer forecasted than in 2020 with only 15,550 currently under construction. The number of these prime properties built in 2020 was 4% below the number built in 2019 so the pipeline is on a decreasing trend. Of the new prime apartments and townhouses built, the greatest proportion by far will be found in Melbourne (7,450), followed far behind by Sydney at 2,825 and then the Gold Coast at 2,250.
Perth has led rental growth for prime properties in cities across Australia, with a 5.3% annual growth to March 2021. Over the past year, prime rental growth increased by 1.1% on average across Australia, though gross rental yields trended down slightly year-on-year to 2.64% in Q1 2021 compared to 2.69% a year ago. The strongest prime rental yield in Q1 2021 was delivered by the Gold Coast at 3.37%.
Read the Australian Prime Residential Review Q2 2021.
The prime residential reports for each city can be viewed below: