Australian cities rank among the top in the world for luxury property price growth, confirmed by two recent international reports analysing patterns in this market. An unsurprising result given the performance of the local property market in recent years.
Sydney ranked among the top 10 in Christie’s luxury index (a rank of the world’s top cities for luxury real estate), where it noted that the average luxury home sold for $US2.1 million in 2017 (and the highest Australian residential sale at $US55 million).
Knight Frank, in The Wealth Report 2018, ranked Sydney 9th among world cities for growth in luxury real estate value in 2017, with such homes increasing 10.7 per cent in value last year according to the index. Melbourne was close behind at 9.8 per cent growth.
“… the gap between luxury and mainstream price performance widened in both cities,” stated Knight Frank in its report, identifying a lack of supply as a main factor driving value growth in Australia.
“Foreign buyer application fees and stamp duty hikes have led to slower rates of annual growth, but a strong appetite for luxury bricks and mortar remains,” it concluded.
In Australia, the sale of a Sydney property known as Elaine for $71 million became the highest residential real estate sale in the country’s history. Sardaka (licensed under CC by-SA 4.0).
Local foreign buyer restrictions hit property sales
Australia has recently been one of the most aggressive nation’s restricting foreigners’ property purchases (explained below). It’s worth noting that in Sydney in 2017, among luxury home buyers, 70 per cent were by locals; 10 per cent by non-locals, but still domestic; and 20 per cent by international home buyers.
ANZ senior economist Daniel Gradwell cites Foreign Investment Review Board data showing that the number of approvals granted for foreign purchasers to buy residential property in Australia fell by 67 per cent in 2016-17, largely because of application fees.
He tempers the board’s research with other data, such as that from the Property Council of Australia, which suggests the decline in foreign buying hasn’t been so steep.
Referring to a June 2018 ANZ-Property Council survey, Gradwell says “the share of property sales to foreign buyers has steadily declined from its peak around two years ago ... [now] nationwide, 16 per cent of property sales were to foreign buyers, down from 24 per cent in September 2016”.
Houses in Shamian Island. Guangzhou is the world’s highest performing market for luxury residences. tunart
International trends: China wanes, Europe waxes
Growth in the global luxury residential market in 2017 reflected the broader positive world economy.
As measured by Knight Frank’s prime international residential index, the luxury residential market grew 2.1 per cent last year, with most of the 100 locations the index tracks recording static or positive annual price growth.
A clear change was the rate of growth in China’s major cities, which slowed. While Guangzhou, just north of Hong Kong and Macau, led world cities in its growth, it was the only Chinese city in the top 10 – a big change from recent years. This dip in China’s rate of increase tempered luxury residential property value growth across the Asia-Pacific region, which as a whole rose 4.4 per cent last year.
Europe was the dominant continent in the top 20 cities for fastest-growing luxury real estate values. In order, Amsterdam, Frankfurt, Paris, Madrid, Munich, Berlin and Barcelona, all grew between 15 per cent and 7 per cent.
“Heightened domestic interest has combined with capital flight from turbulent markets overseas. Latin American buyers now account for over 18 per cent of prime purchases in Madrid’s exclusive enclaves, while Turkish and Middle Eastern buyers are active in both Paris and Berlin,” Knight Frank stated.
Property values in the top Asian cities grew due to limited supply, and an inflow of Chinese investors, both forces that drove the Australian market. Seoul and Hong Kong recorded strong growth, with Singapore not too far behind, where luxury residential property increased 5.6 per cent in value last year.
Using slightly different criteria, Christie’s also ranked Hong Kong highly in its Luxury Defined 2018 report: “With two residential sales above $US100 million and significant annual growth in luxury home sales, Hong Kong led in almost all categories and once again set new sales price records for the region.”
In North America, which has the largest number of residents worth more than $50 million according to Knight Frank, there were solid increases in the luxury property market. Ski resort town Aspen jumped 19 per cent in value from a weaker performance in 2016. In Seattle, shrinking supply has been a factor due to its rapid growth. While a new tax in Canada affected foreign demand in Toronto and Vancouver.
Ski resort town Aspen is the fastest-growing luxury property market in the Americas, where residences increased nearly 20 per cent in value last year. SeanXu
“Prices have now corrected and are stabilising. Vancouver has seen annual growth slow from 14.5 per cent to 3.5 per cent and Toronto from 15.1 per cent to 8.7 per cent over the course of 2017,” stated Knight Frank in its report.
Also in Canada, Christie’s International Real Estate identified Victoria, the capital of British Columbia, as the “hottest primary housing market” in its report. It cited quick sales, surge in foreign buyers combined with strong domestic demand for the city, and included factors such as “buying trends, destination preferences and lifestyle amenities” in its definition of luxury.
In New York City, which easily topped Knight Frank’s city wealth index (determining which cities matter most to the world’s wealthy), luxury properties increased 4.6 per cent in value. (Sydney ranked 11th and Melbourne 20th in its city wealth index.)
And which of the top 100 cities in Knight Frank’s index performed the worst?
In Lagos, Nigeria’s largest city, luxury residences lost a quarter of their value. Qatar’s capital, Doha fell 15 per cent, perhaps reflecting the nation’s isolation from its neighbours after the United Arab Emirates, Bahrain, Saudi Arabia and Egypt severed diplomatic, trade and travel relations with the state. Values in Moscow fell by 11.3 per cent, tracking the volatile oil price to some extent.
Christie’s ranks the Canadian city of Victoria on Vancouver Island as the hottest luxury housing market in the world. Emily Norton
Canada, New Zealand among nations leading buying restrictions
One of the big trends in wealth property transactions is tightening restrictions on foreign buyers. Governments, often treating property as a “topical political issue” according to Christie’s, are targeting property purchases by the wealthy. This is a trend going back to 2010, having a mixed effect on domestic property markets.
“As stories of wealthy international buyers led the headlines in recent years, more governments introduced measures in 2017 – most notably in Ontario, Canada, and across Australia. Although transactions slowed in both Toronto and Sydney in 2018 as a result of these changes, the long-term effects remain unclear as both markets remain relatively stable,” stated Christie’s in its Luxury Defined report.
Knight Frank believes the impact of market restrictions is set to become more pronounced in 2018, with a mix of tax hikes, outright investment bans and controls on mortgage lending aimed at foreign residential property buyers.
“[These] are already being felt in places as far apart as Canada, New Zealand and Australia, together with tighter currency controls facing would-be investors (and in particular those from the Chinese mainland), is beginning to bite.”
(In Australia, these measures include a tax on empty homes, various annual land taxes and foreign buyers stamp duties.)
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