Ross Stitt examines a renewed Sydney/Melbourne housing bubble, perhaps making today’s dizzying prices soon look like a bargain

In the last twelve months, the state of the residential housing market has often dominated headlines in Australia. The tone has sometimes been apocalyptic – tumbling house prices, soaring interest rates, the mortgage cliff, negative equity, and defaulting homeowners.

While house prices now appear to have bottomed out, the angst around interest rates continues. The Reserve Bank of Australia has been slower to raise rates than many of its overseas counterparts. Compare the Aussie cash rate of 4.1% with New Zealand’s 5.5% and the UK’s 5%.

Fortunately, Wednesday’s inflation figure for the year to May was 5.6%, lower than market expectations. Nevertheless, there’s still a risk of at least one more rate hike and that wouldn’t be good news for millions of mortgaged homeowners.      

However, there’s one sector of the housing market that’s generally immune to interest rate movements and it appears to be booming. The prestige market.

The headline of a recent research note from the National Australia Bank says it all – ‘Luxury property continues to attract staggering prices’. In terms of interest rate rises, the bank says, ‘the prestige buying cohort has been largely unaffected when compared to the broader market’.  

That’s certainly the case at the very top end according to figures published by The Australian. In the current financial year ending 30 June, the entry level price to make the list of the ten highest value sales in Australia was A$52 million. That’s significantly up on last year’s entry point of $34 million.

The highest price was $130 million paid by tech billionaire Scott Farquhar, co-founder of Atlassian, and his wife for a non-waterfront property in Point Piper. The vendor acquired the house back in 1996 for just $9 million.      

Seven of the top ten properties were located in Sydney’s eastern suburbs and three in Melbourne’s Toorak.

One particular case demonstrates the strength of the market for premium properties. Businessman Arthur Tzaneros paid $61 million to purchase a house in Bellevue Hill, Sydney. He already had a house in nearby Vaucluse that he bought for $32 million in September 2021. As that house is now surplus to requirements, it’s reportedly back on the market for $50-55 million. Even at the lower end of expectations, that would be a gain of 56% for Tzaneros in less than two years.      

Clearly interest rate rises are not a problem for everyone.

Another sign of the buoyancy in the luxury residential market is the strength of high-end apartments. Developer Lendlease is currently completing ‘One Sydney Harbour’, its mammoth three tower residential complex at Barangaroo on the western side of the CBD. Sales to date exceed $3.7 billion with over 90% of all apartments sold. That includes a three-storey penthouse that sold for $140 million several years ago, making it Australia’s most expensive residence.

Lendlease is also developing ‘One Circular Quay’ in the heart of Sydney with views of the Opera House and the Harbour Bridge. It’s a 58-storey tower with 158 apartments. Prices for a two-bedroom unit start at $11 million and Lendlease is seeking more than $140 million for the penthouse. While One Circular Quay is not due for completion until 2026, over half the apartments have already been sold.      

Unsurprisingly, many apartments at these prices are purchased by international buyers.

Sydney is one of 12 luxury residential markets around the world tracked by property services group Knight Frank. According to the group’s latest ‘Global Super-Prime Intelligence’ report, in the year to March 2023 Sydney placed ninth for the number of ‘super-prime’ sales – sales over US$10 million (A$15 million). It had 76 sales above that level.

Source: Knight Frank Australia

Knight Frank Australia’s Head of Residential Erin van Tuil said that ‘over the past five years Sydney’s super-prime market had matured and as a result will increasingly attract more international buyers’. The largest group of foreign owners of prime homes in Australia come from the UK, followed by the US, Singapore, and China.

Knight Frank’s assessment is backed up by the ‘Private Wealth Migration Report 2023’ from migration services firm Henley & Partners. That report tracks the net movement between countries of ‘high net worth individuals’ (HNWI) – individuals with investable assets of at least US$1 Million.

In the current year, Henley & Partners forecasts that Australia will have a net inflow of millionaire migrants higher than any other country. (New Zealand is also predicted to make the top ten.)      

Source: Henley & Partners

The report states that ‘Australia consistently attracts sizeable numbers of millionaires every year, mainly from Asia and Africa, but more recently from high-income countries such as the UK’. It attributes Australia’s appeal to a range of factors, including the health and education systems, the weather and scenery, the safety and security, the advanced economy, and the points-based immigration system ‘which favours wealthy individuals and those with professional qualifications’.  

Many of these factors are reflected in the strong showing of Australian cities in the latest ‘Global Liveability Index’ from the Economist Intelligence Unit. This year Melbourne is ranked number three, ahead of Sydney at number four. (Vienna and Copenhagen take the top two spots.) Perth and Adelaide are equal at number 12 and Brisbane is at number 16. (Auckland comes in at number 10.)

All the signs are that wealthy migrants (and investors) will continue to view the lucky country as an enticing destination. That augurs well for the Australian property market in general, and for the top end in Sydney and Melbourne in particular.

It’s hard to imagine, but today’s dizzying prices for super-prime Sydney real estate may soon look like a bargain.     

*Ross Stitt is a freelance writer with a PhD in political science. He is a New Zealander based in Sydney. His articles are part of our 'Understanding Australia' series.