Rise of rightsizers pushes up prestige apartment prices

Australians downsizing to luxury apartments are driving a rapid rise in prestige property values, with sales of apartments worth $10 million or more in the first half of the year running at nearly eight times more than the 10-year average.

Research by Knight Frank showed that the pandemic had accelerated many Australians’ plans to move into a lower maintenance, higher-end dwelling, contributing to a large increase in transactions at the top 5 per cent of the market.

Over the past decade, there has been a yearly average of 8.7 apartment sales exceeding $10 million across Australia’s five biggest cities.

In the first half of 2021 Knight Frank reported that there was more than 60 such sales, with 70 per cent of those occurring at Crown Group’s Crown Residence in the Sydney Harbour suburb of Barangaroo.

A big cohort of buyers sought luxury apartments because they can be easily locked up and cared for over an extended period, with those purchasers looking forward to a future reopening of international travel.

Another emerging trend was buyers embracing the concept of a co-primary home, with holiday homes almost equal in quality to their main residence.

In the first quarter of 2021, all five major Australian cities recorded positive annual growth in sales volume for only the third time in the last decade. 

Positive growth strengthened in Q2, with all cities’ upward trajectory strengthening, resulting in a big hike in the price of luxury apartments.

Off-the-plan dwellings rose by 36 per cent in value since June 2015 in Australia’s major cities, while existing apartments rose 31 per cent in value over the same six-year period.

But at the same time, supply of luxury apartments is starting to tighten, with forecasts showing the number of new prime apartments to be built in the next three years is set to fall by 39 per cent.

The supply slowdown will be felt most acutely in Sydney, Melbourne and Brisbane, while construction of new luxury apartments is expected to modestly rise in Perth and the Gold Coast.

Knight Frank head of residential research Michelle Ciesielski said prestige sales data highlighted a continually increasing appetite of buyers for primary and secondary homes.

“Though these Australians are prepared to spend what it takes to fulfil their rightsizing requirements, the widening gap between this buyer demand and appropriate property supply remains concerning, and residential construction difficulties continue to delay delivery of new product,” Ms Ciesielski said.

“The shortage of suitable product, particularly at the top end of the market where rightsizers play, has been exacerbated by developers unable to easily secure sites in prime locations, adding to the highly pressurised buying environment across Australian cities.”

Ms Cieselski said while the pandemic had accelerated detached house price growth far more than that of apartments, it also drove an uptick in the number of people seeking a secondary residence.

“For many rightsizers in the residential market, they are seeking a bolthole in the city in preparation for business activity returning to the office environment, while also taking residence in their country and coastal second homes,” she said.

“Over the coming years we will see increasing numbers of rightsizers who are seeking a low maintenance home as their main residence, given the transient global lifestyle that will return for many of the ultra-wealthy population.

“This pent up demand will continue while we know luxury apartment delivery and sales listings remain shallow across almost every prime region of Australia.”