‘Living their best lives’: Well-heeled splash out on property, travel

Well-heeled Aussies are snapping up $5m-plus properties and planning $150,000 overseas jaunts, unfazed by the prospect of another rate hike next month.

As the odds narrow for a Melbourne Cup day interest rate rise, real estate agents warn it’s not likely to crimp the “remarkably resilient” property market, with debt-free buyers at the very top and a lack of rental or cheap home options keeping the $2m-plus range strong.

In Melbourne, Kay & Burton chairman Gerald Delany says in the $5m-plus range it’s “as strong a market as I’ve ever seen”, while Phillips, Panzer, Donnelly founder Alex Phillips described Sydney’s eastern suburbs’ $3m-$5m range as “very hot”.

And what’s the point of a nice house without a holiday? The other sector shrugging off cost-of-living blues is the travel sector. It’s a bizarre post-Covid trend that’s being replicated in London and parts of Europe.

Travel agent Kylie Brumwell from Flight Centre unit Travel Partners says demand remains extremely strong, leading her to believe the pandemic has made many focus on living their best “current lives”.

“My clients have realised that things can change at any time and they don’t want to miss out, and so they’re planning ahead and they’re doing a lot,” Brumwell says.

Like the real estate agents, she has seen little sign that soaring interest rates have slowed demand among her clients, who spend between $5000 and $150,000 on international holidays.

“My average client would be 50-plus, so they’ve paid off their mortgages,” she says. “I’ve got a lot of families too and they’re more price-conscious, but then again they are very well travelled and pretty affluent, so the interest rates aren’t bothering them. They might still have a mortgage, but they’re not bothered.”

This may not be music to the ears of Reserve Bank governor Michele Bullock, who is already needing to factor in stronger than expected September quarterly inflation figures. Most economists now think interest rates have further to rise, despite having gone up 12 times since May last year. The challenge for Bullock is how to slow people’s spending through higher costs of borrowing without sending them to the wall.

In Melbourne’s wealthy Toorak, Delany admits he does sometimes wonder where all the money pouring into real estate is coming from.

“Where’s it coming from is a very good question,” says Delany, whose firm recently sold the late Ron Walker’s family home in Toorak for a rumoured $60m.

The late Ron Walker’s Toorak mansion sold for a rumoured $60m this year.

“There is a lot of support from the Asian market … and people at these levels, the big end of the market, are not reliant on borrowing. They might have a small amount of borrowings, they might utilise their properties as some sort of collateral, but they’re not borrowing 60 per cent of the purchase price, for example, and 6 per cent interest.”

In Sydney’s coastal enclave of Bronte, Phillips says he is seeing signs the rising cost of borrowing is affecting the market, leading some families to downgrade to reduce debt.

“We’ve sold three in the past month for younger families that had been upgrading, but are downgrading to reduce debt. We’ve got a couple in Bronte that sold for $7m and are buying for $5m to reduce what sort of mortgage they’ve got,” Phillips says.

“That’s why that $3m-$5m bracket is so hot. There was already so much depth from the general market keeping it strong and buoyant,” he adds, with one in five being a first-home buyer.

The net result is that the $5m-$7m market is pretty flat and $9m-plus is starting to “come off”.

Would a Melbourne Cup rate rise actually push prices down?

“No,” says Phillips. “Everyone knows there are probably one or two rises to go. If anything it will kill the retail market more than our market, I would think.”

If he’s right, it ties in with the latest survey data from Qantas Frequent Flyer, which shows that travel remains a top spending priority over the next six months, ahead of homewares and entertainment.

A person with a $750,000 mortgage is now paying $22,000 more on their repayments per year, but Phillips points out that banks are still lending, albeit at smaller amounts.

“People can still borrow money easily, but they don’t get as much,” he says. “If you were approved for a $1m loan a year ago, that now gets you $650,000, so that’s a pretty big drop.” It will mean that the market will “probably be quite flat for the next few years”.

Fellow Sydney agent Mark Yeats from Raine & Horne agrees that a rate rise on November 7 would not change much.

Travel agent Kylie Brumwell from Flight Centre unit Travel Partners says her clients spend up to $150,000 on overseas holidays.

“Two or three rises certainly would put the brakes on pretty hard. I don’t think that one more rate rise is going to be the catalyst for anything,” says Yeats, who focuses on the Bondi market and is also seeing a lot of interest in the $3m-$4.5m segment.

“It’s very competitive … we get all sorts of people buying at the moment. We’ve got people buying for their kids. I just sold one to somebody who bought it for his son, a semi for $4m. There is a hell of a lot of money in the eastern suburbs property market.”

Domain predicts property prices in Sydney will top last year’s record highs by the end of this year even factoring in all the rate rises.

CoreLogic head of research Tim Lawless says the strength is coming from the $2.5m-plus market across Sydney, Melbourne, and Brisbane, with the latter city reaching record high property prices, as are Adelaide and Perth.

Reaching a record for property prices may be particularly tough for Sydneysiders, Lawless says, pointing out that a typical household needs to spend 9.2 times their gross annual household income to buy a median-priced dwelling.

“Sydney really stands out,” Lawless says. “The peak in Sydney was a little bit over 10 times, but it’s starting to rebound again. It’s elevated. It’s not like affordability has been resolved. It’s still really stretched.”

And if having to spend $2m on a first home sounds bonkers, Lawless says the rental market is offering little reprieve and may in fact be forcing more people to buy: “Vacancy rates are at record low levels pretty much everywhere.”

Sydney is at about 1.2 per cent, Melbourne and Brisbane at about 1 per cent, and both Perth and Adelaide are around 0.5 per cent.

In economic terms a healthy vacancy rate would generally be up around the 3-4 per cent.

No wonder then, that any first home buyers who can tap mum or dad for loan are having to look at buying into such a hot market.

Originally published as ‘Living their best lives’: Well-heeled splash out on property, travel