My last post attracted some questions about my thoughts about the future direction of the top end of Australia’s housing market.
Whilst much of the current slide in median values is due to a slowdown at the upper end of the housing market, this market has a big future.
Five potential dimensions as to why include:
1 – Current sales activity
Table 1 shows that the volume of top end dwelling sales – in this case determined by dwelling sales valued over $2 million – has increased markedly over recent years.
Across southeast Queensland (including the Gold Coast) there were 3,270 $2 million plus dwellings transactions last year.
And the eastern states of Australia (being Queensland, New South Wales, Canberra and Victoria) recording just under 60,000 similar dwelling sales.
2 – Latent demand
Typically, dwelling values for older homes in established suburbs, in our experience, are often 1.5 times to 2 times higher than their unimproved land values.
A recent consultancy gig suggests that – and using a multiplier of 1.5 times and looking at freehold dwellings with an UCV over $750,000 only – that there are between 60,000 and 70,000 freehold dwellings with a potential value over $2 million on the Gold Coast.
Table 1 suggests that there is around 1,300 dwelling sales over $2 million at present on the Gold Coast.
Yet if the right housing product is available the potential sales audience is substantially larger.
3 – Individual wealth
Table 2 suggests that there is likely to be 220,000 multi-millionaires (in US dollars) living in Australia by 2025. The size of the world wealth market is also growing rapidly.
Over the last two decades and helped by the strong housing cycle over the past couple of years, many Australian’s have become very wealthy as they have a combined net housing worth estimated to be $7 trillion.
Furthermore, as more older generations die it has been estimated that some $272 billion will be passed on as inheritance over the next decade.
History suggests that much of this money will be used to upgrade the recipient’s principal place of residence.
This is a potential ‘game changer’ when it comes to the top-end Australian housing market.
4 – Wellness
Australia is the third largest ‘wellness’ market in the world. Wellness travel in Australia is estimated to be worth $16.5 billion per annum, ranked behind China and the United States.
A recent survey by Global Wellness Institute found that 39% of respondents voted for Australia as being their preferred location for a ‘wellness’ holiday.
Whereas these comments are tourist orientated, world-wide footfalls – and especially those with considerable wealth – are increasingly heading to the likes of Australia, New Zealand, Canada, the UK, the coastal flanks of the USA and Europe.
5 – Overseas interest
The Australian Government’s current population growth is forecast to increase from 0.1% in financial 2022 (Covid impacted) to 1.4% for fiscal 2023.
The latest federal budget estimate of 235,000 net overseas migrants for 2023 is already likely to be surpassed to about 300,000 for this financial year.
Moreover, the Department of Home Affairs has finalised over 2.78 million visa since June last year. This includes some 90,000 skill work-related visa applications.
A recent global survey of top end buyers by Knight Frank found they want the following things in a new housing development:
- Luxury amenities and resident exclusive services
- Lock up and leave options
- Brand identity
- Expressive architecture
- A very high standard of building maintenance/management
- Above inflation gross rental yields
- Capital growth potential
We expect a continuation of the recent overseas buyer trends, if not a heightened level of overseas buyer interest from expats and other overseas residents who view Australia has a ‘bolt-hold’ against future potential pandemics and rising social/political unrest.
New premium dwellings in Australia have the large and growing existing buyer market. In addition, the size of the latent market is bigger.
Many of these wealthy dormant buyers – including those already living in Australia or overseas – could be attracted to the right housing solution.
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