In Sydney, there are two narratives at play in the real estate market. While soaring interest rates are immobilizing many buyers across the general market, cash buyers in the top price points are staying active amid a lack of luxury inventory.
Throughout 2022, Sydney saw the most significant annual price falls among all of Australia’s capital cities, with home values dropping 12.1%. However, the prestigious end of town had a different experience. Prices across the city’s prime market—defined as the top 5% in terms of home values—actually increased in 2022, although modestly, by 1.1% according to Knight Frank’s 2023 Wealth Report.
Industry insiders attribute the buoyant nature of Sydney’s priciest properties to the sector’s relative immunity to interest rate movements. Erin van Tuil, Knight Frank Australia’s Head of Residential, said the country has a larger than average proportion of high-end cash buyers. In our Wealth Report it said 49% of prime market buyers internationally were cash purchasers.
There’s definitely less impact from interest rates in the prime market, that’s why it’s behaving differently. Although we don’t have the data on cash buyers for Sydney specifically, we do know that typically 25% of our ultra-high-net-worth population lives in Sydney.
Knight Frank puts Australia’s population of ultra-high-net-worth individuals (residents with a personal net worth of more than US$30 million) at 20,874 people, up by 10.1% in 2021 alone. The firm is forecasting Australia’s affluent headcount will grow a further 30.9% by the middle of the decade. Low supply of prestige property is also behind the luxury market’s unique resilience as wealthy homeowners don’t want to—or don’t need to—sell. Stock at the moment is definitely tightly held. There’s less stock on the market, which then is also contributing to the prices of prime property outperforming what’s happening in the mainstream.
The number of cashed-up foreign buyers and returning expats purchasing in Australia is rising, according to Sydney-based Monika Tu, Founder and Principal of Black Diamondz, a luxury property brokerage. She said approximately 70% of her deals are cash, with the pool of buyers looking for homes valued at A$25 million and up are currently very active.
Many buyers are coming from China, Hong Kong, Singapore and Vietnam. What’s happening internationally is overwhelming, there’s so much uncertainty, but Australia is still favoured with South East Asian and Chinese buyers because it’s a relatively stable market. And when we compare square meters of prestige property, we’re so much cheaper.
Beyond rising interest rates, there are other factors influencing prestige buyers, said Sotheby’s Sydney International Director Michael Pallier. This end of the market is often more affected by the stock market and where the Australian dollar is. We’ve got a lot of migration coming into Australia and our dollar is pretty attractive right now for overseas buyers,” he said, referencing the fact that US$1 equals approximately A$1.47. While global events are front of mind for prime market buyers, Pallier explained that these purchasers are still astute business people with an eye for the right deal.
