Luxury homes were the asset class of choice for Australia’s ultra-rich, with one in three spending nearly a third of their wealth on their main or second property last year, according to Knight Frank’s latest Wealth Report.
The high demand for luxury homes has seen a literal race for space, with ultra-wealthy Australian buyers competing for large waterfront plots in Sydney, and large apartments with roof terrace, balcony or outdoor space, Michelle Ciesielski, head of residential research at Knight Frank, explained.
“There is widespread concern - as new homes have generally been shrinking in size over recent years, and with significant lags in construction, coupled with supply chain issues - it’s going to take some time to deliver,” she said.
“This will only generate a premium on large luxury homes for some time to come.”
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She added that in 2022, we would see the luxury housing boom continue as conditions returned closer to pre-pandemic levels and demand for property in cities grew.
In Australia, 28 per cent of ultra-high-net-worth individuals (UHNWIs) plan to buy a home in 2022 and we know 36 per cent of Australian UHNWIs are considering refinancing options in the next 12 months to capitalise on the current low-interest-rate environment, according to the report’s data.
Ciesielski said the top trends for the luxury property market in 2022 would be:
Persistent stock shortages in prime markets
Ramped up taxes and cooling measures
Further detachment of the super prime market of properties above US$10 million
Wealthy Aussies boomerang back to the city
Not only does the report show the demand for luxury property has surged in the wake of the pandemic, it also shows the mass exodus from Australian cities has undergone a boomerang effect in the past year.
While we previously saw a trend of Australians leaving the city and moving to regional areas in search of more space, amid flexible working and prolonged lockdowns, the report shows ultra-wealthy Australians are now moving their wealth back to the cities and are also investing in a second home.
And the move has fuelled a sharp rise in prime residential prices in the capitals over the past 12 months, of 12.3 per cent.
In fact, all Australian cities in the Prime International Residential Index (PIRI) 100 exceeded the prime global price growth in 2021.
But unsurprisingly, the Gold Coast came out on top as the best-performing Australian city, ranking at number 12 globally with 17.1 per cent growth, followed by Sydney at number 17 (16.2 per cent growth).
Brisbane placed at number 29 (11.2 per cent), Perth at 31 (10.5 per cent) and Melbourne in 39th place (9.4 per cent).
Globally, overall, The PIRI 100 grew 8.4 per cent in 2021, up from just under 2 per cent in 2020 – the highest annual increase since launching in 2008, with only seven of 100 cities seeing a decline in prices and 35 per cent of locations seeing double-digit growth.
Hotspots for 2022
Around the world, the report identified 12 ‘hotspot’ suburbs set to experience surging growth in demand and pricing for residential property.
This is based on income-growth potential, health and well-being, education, tax, relative value and infrastructure.
And it's our very own Byron Bay which is tipped for the strongest growth forecast around the world.
The area is expected to increase in value by 30-35 per cent over the next 5 years.
Competition for residential property will only continue to intensify as Byron Bay’s environmentally minded council has limited the number of new homes built over the past decade.
“In the past two years, we have seen substantial emphasis from ultra-wealthy buyers seeking homes with a significantly reduced impact on the environment,” Ciesielski said.
“There is a growing, committed pool of buyers asking questions spanning energy efficiency, embodied carbon and the sustainability of materials.”
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog and hosts the popular Michael Yardney Podcast.