The price of luxury properties in Australia could fall for up to three years with some having seen drops of 20% since January as expensive suburbs become the poorest real estate market performers.
The near double interest rate rise in November last year has hit Australian capital city property values which are down 1.2% in the three months to the of end April, although in raw terms home values are mostly unchanged at -0.2%, according to the latest RP Data-rismark index.
The difference between these two results reflects the fact that the housing market typically experiences higher rates of capital growth at the start of each year, which are reflected in the seasonally adjusted data.
According to Tim Lawless, RP Data’s research director, expensive suburbs have helped drag the overall market down. Over the year to the end of April, properties in the most expensive capital city suburbs recorded a 5.4% loss. In contrast, property values in the middle suburbs were down by only 0.9% while those in the cheapest suburbs were the best performers, hardly moving at -0.5 per cent.
‘The solid performance of cheap suburbs runs against the grain of popular claims that default rates are rocketing up amongst first time buyers, which the RBA recently rejected,’ said Lawless.
‘The luxury end of the housing market is also showing its volatility. During the growth phase of the cycle, the most expensive homes realised the highest capital gains. Yet as the market cools premium home values seem to be losing steam the fastest,’ he explained.
According to Rismark joint managing director, Christopher Joye, the uber-luxury segment is risky and highly illiquid due to a combination of the soaring Aussie dollar and the volatile share market.
‘A final fly in the ointment is the much lower growth and pay packets expected in the financial services industry going forward. Luxury homes in areas like Sydney’s Eastern Suburbs will continue to face valuation headwinds as banks deal with the new normal of subdued credit growth,’ he said.
The national median price in capital cities is $468,000 based on sales over the three months to April. Elsewhere it is far lower at $325,000. Across all Australian regions, the median dwelling price is currently $418,000.
Rismark expects at least another one to two rate hikes this year, which will solidify the cooling in residential valuations, according to Joye.
On a month-to-month basis, the January result was the worst on record with capital city dwelling values down 1.2%. Since that time the magnitude of declines has moderated noticeably with average monthly seasonally adjusted falls of -0.4% between February and April. ‘Thus far this has been a very controlled exit from the strong growth conditions of 2009 and the first half of 2010,’ said Lawless.
While the slow down in market conditions is evident across all cities, the Sydney and Canberra markets have remained in the black on a year on year basis. Sydney values are up 1.2% while Canberra dwelling values have risen by 0.7% over the year to April.
At the other end of the spectrum are Perth and Brisbane where home values continue to experience a more significant correction. Perth values have recorded the largest fall of any capital city over the 12 months to April, down 7.1% and down 6.8% in Brisbane.
According to Lawless, the weak conditions seen in the Perth and Brisbane markets combined with the comparatively high capital gains recorded in Melbourne and Sydney has driven a widening housing cost gap.