According to Knight Frank’s Global Prime Residential Forecast, the projections for prime prices in 2023 and 2024 have been revised upwards. The 2023 forecast was initially 1.7%, revised to 2.4%, while 2024 was initially 2.1%, now 2.5%.

The factors set to shape 2024

The tumultuous 2023 has been characterised by global conflict, soaring inflation and interest rates, and general uncertainty.

But among the expectations for 2024, the report found headwinds may be easing, the proportion of cash buyers rising, and elections are the biggest risk to prime markets for next year.

The report found that cash sales rose from 46% to 52% in the last six months.

Politics and regulations are both a major hurdle and potential boon. On the one hand, tighter controls around energy, sustainability, and holiday letting may be concerns going into 2024, but on the other hand, relaxation of property and tax regulations may be an opportunity.

Upcoming elections include the Indian General Election (before the end of May 2024), US Presidential Election (November 2024), UK General Election (before January 2025), Canadian General Election (Before October 2025), and Singaporean General Election (before November 2025).

The report also found that the increase in demand is expected to be small, likewise the increase in supply, sales, and foreign buyer activity.

Melbourne and Sydney in top ten for price growth forecast

The Sydney luxury property prices are forecasted to rise five per cent next year, fifth behind Auckland, Mumbai, Dubai, and Madrid.

Melbourne came in at eighth in the world, with prime residential property prices predicted to increase by three per cent.

Perth and the Gold Coast are also forecast to see luxury homes rise in value, up four per cent each.

Source: Knight Frank Research.

Knight Frank head of residential research in Australia, Michelle Ciesielski, said cautious optimism was emerging in the luxury residential property market globally, with prime buyers appearing confident that economic headwinds were easing.

“In Australia, buyer appetite is strengthening, while supply of prime properties is constrained,” she said.

“The limited number of exceptional and most desirable prime residential property listings continues to create a price floor under many luxury Australian properties.

“This undersupply of luxury homes is one of the key factors set to shape the performance of the Australian prime residential market in 2024, with inflation and interest rates also set to play a big role.”

Michelle Ciesielski, Knight Frank

“In saying that, in this upper echelon of the market, we are seeing an increasing number of cash buyers, with the proportion being 60% of all prime residential property sales in Sydney and 65% in Melbourne.

“Climate risk, geopolitical tensions and currency shifts are also expected to impact the Australian luxury property market.

“Amongst these risks there are opportunities, however, with property set to continue to appeal as a means to diversify and spread risk, being seen as a safe haven for capital.”

Knight Frank head of residential in Australia, Erin Van Tuil, noted that the super-prime end of the market, especially A$20 million plus, is doing exceptionally well, with no shortage of buyers and limited homes.

“Most buyers are local Australian buyers, with a notable absence of foreign buyers committing to sales, despite enquiries.

“Relative to other Australian cities, Melbourne has counted more prime luxury product built over the past couple of years, which has made prime prices lag the stronger performance in other Australian cities.

“Melbourne is also still recovering from an extended lockdown in the pandemic, with the city seeing many residents move interstate to Queensland and the slower return of international investors which the city relies heavily on.”

Source : ThePropertyTribune

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Sydney’s most pricey rentals are set to get even more expensive, with the city’s luxury rental growth having shot up from 11.7% to 13.1% when compared to the last quarter, deviating from the worldwide slump in rental growth, according to Knight Frank’s latest report.

Prime rents down, but still elevated

Average prime rents in major world cities were increasing rapidly, with an annual growth of 7.5% in the 12 months to June, according to Knight Frank’s Prime Global Rental Index (PGRI) for the second quarter of 2023.

The PGRI provides quarterly reports of luxury lettings market patterns across 10 major city markets globally.

While the Q2 rate was below the 8.2% seen in Q1 this year and the 12.2% peak in Q1 2022, the present growth is still significantly higher than the norm. To illustrate, the pre-pandemic average annual growth of the 10 years to 2020 was 2.2%.

However, from the beginning of 2021, the market’s recovery from the early shock of COVID-19 has brought about an average growth of 6.6%, thrice the pre-pandemic average.

Knight Frank head of residential research, Michelle Ciesielski, said that the main factors behind the rental growth trend are a high demand from residents returning to cities post-lockdown, buyers being priced out of sales markets due to price rises driven by interest rate increases, and a scarcity of new supply caused by problems in construction throughout the pandemic.

The second runner-up in luxury rental growth

Sydney’s annual luxury rental growth of 13.1% was the third highest, according to the PGRI, behind London’s 14.4%, and Singapore’s 24.5%.

Knight Frank Prime Global Rental Index (Changes to Q2 2023)

Luxury rents in the capital city experienced the most substantial growth over the past six months, at 8.7%, and the second highest growth over the past three months, at 3.2%.

“The overall index has risen by 23% from Q1 2021 to date,” Ciesielski said.

“Growth in specific cities has been even stronger, with New York, Singapore, and London seeing rental growth of 56%, 53%, and 51% respectively over the same period.

“While some of the PGRI growth hubs have seen a moderation in the pace of rent rises, including Singapore, London and New York, and the index overall shows a fall in the pace of rental growth, Sydney is seeing the opposite trend with annual growth increasing compared to the previous quarter.”

Ciesielski remarked that while rental growth will eventually stagnate, the dearth of new stock being delivered means that high rents will remain the norm.

Little hope on the horizon

“A chronic undersupply of rental homes currently extends to most parts of Sydney at every price point, and this continues to be reflected in the double-digit rental growth for luxury property being recorded,” said Knight Frank head of residential, Erin van Tuil.

“In affluent areas, there tends to be at least one home in the street having some type of renovation work done, and many take up a rental home while these works are being carried out. Construction delays over the past few years have meant these prime rental homes are required for double or triple the time than first expected while they wait for tradespeople and prime cost items from around the world to be delivered to finish the job.

“We continue to experience a skills shortage in Sydney, and this extends to the executive level who are most likely going to need a prime residential home provided when lured to work here. Elevated rents are being paid to secure a prime rental home until they settle into the city.

“In the past few months, there has been an increasing number of box office movies being filmed in Australia with actors and production crew using Sydney as their base, placing further pressure on the top end of our rental market.”

Source : ThePropertyTribune

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