_Ultra-wealthy's desire for Australian property fuelling record prime growth
While 2021 was the second year of the pandemic, The Wealth Report 2022 out now, shows ultra-wealthy Australians have responded very differently to circumstances this year, choosing to transfer their wealth back to Australia’s cities. The resilience of cities in the face of COVID-19 has been stark across 2021, with the exodus from cities undergoing a boomerang effect in the last year and Australian cities experiencing average prime price growth of 12.3%.
Michelle Ciesielski, Head of Residential Research says: “There’s been much attention on the idea that COVID-19 triggered an ongoing trend of Australians leaving urban centres for regional areas. In fact, what we are now seeing is that ultra-wealthy Australians are transferring their wealth back to the cities whilst also investing in second homes. The use of second homes for longer periods was supercharged in 2021 as flexible working grew and homeowners looked to decamp for periods of time.”
Image: waterfront homes like Mayfield Avenue, Woolwich are among those the global wealthy are seeking in Australia
All Australian cities in the Prime International Residential Index 1001 exceeded the prime global price growth in 2021, with an annual average of 12.3%. The Gold Coast was the best performing Australian city, ranking at number 12 globally with 17.1% growth, followed by Sydney at number 17 (16.2% growth), Brisbane at number 29 (11.2%), Perth in 31 (10.5%) and Melbourne in 39 (9.4%). That being said, Sydney has the strongest forecast in Australia for 2022 with 9% growth. Globally, overall, The PIRI 100 grew 8.4% in 2021, up from just under 2% in 2020 – the highest annual increase since launching in 2008, with only seven of 100 cities seeing a decline in prices and 35% of locations seeing double-digit growth.
Luxury homes - the ultra-wealthy’s asset class of choice
Luxury homes emerged as the asset class of choice for UHNWIs in 2021, a rapid turnaround from 2020, where 19% of global UHNWIs bought a home throughout the year. This reached as high as 31% of Australian UHNWI buying a residential home last year, second behind Hong Kong (37%). The world has never been wealthier, and the role of residential property as a store of wealth has never been greater, with almost a third of the wealth held by UHNWIs being attributed to their primary and/or secondary residences in 20212. On average, 32% of Australian UHNWI’s wealth is directly allocated to property for their principal and second homes where they and their family spend time.
“After the onset of the pandemic in 2020, housing markets ceased trading for months at a time as the population grappled with uncertainty, but in 2021 they started to race away as Australians accrued savings, vaccine rollouts gathered momentum and the global economic outlook began to improve. Rather than ‘steady and sustainable’ growth, it’s fair to say the growth in the last year was ‘stellar and spectacular' in the prime residential market," reflects Michelle.
“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. 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. This will only generate a premium on large luxury homes for some time to come.”
Image: Australia's most expensive penthouse with an asking price of $100 million at Crown Residences at One Barangaroo
In this year’s The Wealth Report, we set out to investigate the entry price point for the top 1% of homes, by value. On par with Los Angeles, Sydney was found to be US$6.3 million for the entry price point for the top 1% of homes by value, with Monaco leading with the highest entry price point of US$34 million.
Shayne Harris, Head of Residential, says: “The flight towards luxury residential investment over the last 12 months has been driven by space, security, and increasingly – emotion. The focus on space and security has intensified during the course of the pandemic, with wealthy Australians focused on investing more of their income into their homes and home spaces, with a view to spending more time there. Interestingly, this is reflected across similar asset classes such as superyachts, with suppliers seeing order numbers increase 6% year-on-year in 2021 – so whether people are in their luxury mansion or on their superyacht, they want the ability to exist in a bigger, safer space that they enjoy spending long periods of time in.
“Similarly, we’ve seen a greater emotional connection developing between people and their homes over this time. Increasingly, wealthy individuals are not just thinking about their investment into the asset (capital gains and what returns they’ll get, for example), but are thinking more about what memories they’ll make there and how grateful they are for their life circumstances making the purchase of a space like that possible.”
Australian hotspots
Around the world, 12 ‘hotspot’ suburbs were identified – those set to experience surging growth in demand and pricing for residential property – based on: income growth potential; health and wellbeing; education; tax; relative value; and infrastructure. In The Wealth Report 2022, Australian neighbourhood Byron Bay is tipped for the strongest growth forecast of these 12 hotspots around the world influenced by the town’s health and wellbeing elements.
Image: Byron Bay, a hot spot to watch in 2022 and home to sustainable master-planned community Harvest Estate
Michelle reflects: “There is always a lot of interest in which areas will emerge as the next in-demand global ‘hotspots’ for buying activity – and our forecast analysis has identified the top global hotspot for the ultra-wealthy as being Byron Bay, Australia. Our data shows Byron Bay having a price growth forecast of 30-35% over the next five years, and competition for residential property here continues to intensify as Byron Bay’s environmentally-minded council has limited the number of new homes built over the past decade.
Luxury property trends for 2022
Australia makes it into the top three countries and territories that global UHNWIs plan to buy a home in during 2022, with their priority countries being the United States, the United Kingdom, and then Australia. Different markets around the world face unique challenges dictated by their climates, governments, and cultures. When it comes to purchasing a home, Australian UHNWIs list broadband speed as their increasingly more important consideration (at 56%), then wildfire risk (38%) followed by flood risk and the home’s energy source (31%).
“The top trends for the luxury property market in 2022 will be: persistent stock shortages in prime markets; ramped up taxes and cooling measures; and the further detachment of the super prime market of properties US$10 million plus.
“Predicting the ‘home of the future’ is difficult as homes in advanced economies could look almost unrecognisable in decades to come according to industry experts we spoke with in The Wealth Report 2022. We will see sustainability at the fore of development, with new materials come to market with a much lower carbon footprint and design elements to last beyond 100 years. Materials in the home will self-repair and self-sanitise, and in the future, city buildings will be built by robots and drones. It’s quite likely that we’ll have inbuilt fingerprint technology in the not-too-distant future, too.”