Gateway cities to drop behind in global prime housing race

Luxury homes in Sydney and Melbourne will lag the price rises expected in top-performing cities next year, Knight Frank says.

Knight Frank expects prime prices to rise by just 2 per cent across 25 capitals which it tracks.

The most expensive homes in Sydney and Melbourne are expected to fall behind rival global cities next year, according to real estate firm Knight Frank.

As the economic slowdown bites, the agency expects prime prices to rise by just 2 per cent across the 25 global capitals which it tracks.

Prices at the prime end in Sydney are expected to be flat and Melbourne’s prices are expected to dip by about 1 per cent, putting them not too far off London where a 3 per cent fall is predicted.

Cities such as Dubai, where prime property is expected to surge by about 13.5 per cent, Miami, Dublin, Lisbon and Los Angeles, are tipped to be the top five cities for price growth. But properties in Australia’s gateway cities may not perform so well.

Knight Frank’s research reveals that expectations of prime price growth had been pegged back from the 2.7 per cent predicted six months ago, although 2023’s forecast growth still exceeds that recorded in six of the past 10 years.

The forecast of no price growth in Sydney is well down from bullish hopes of 9 per cent rises a year ago. Sydney is still rated among the top five cities for most likely home purchases by

by ultra-high-net-worth individuals in the next one to two years.

Knight Frank head of residential research Michelle Ciesielski said although we saw Sydney luxury residential sales volume 7 per cent higher in the second quarter of 2022 for homes worth more than $3m, the third quarter 2022 volume had now tapered back by 24 per cent and this was likely to continue heading toward the NSW election.

“This lower sales volume will continue to impact price growth momentum in 2023, but interestingly, active prime residential listings remain low at a time when not much is being built, so we’re expecting Sydney’s prime price growth to pick up again by 2024,” she said.

Ms Ciesielski pointed to China’s strict zero-Covid policy as affecting local markets.

Lingering travel restrictions are still creating much lower prime residential viewings from international buyers in Sydney despite being an attractive safe haven to many. However, looming geopolitical tensions and the firm stance on keeping Covid-19 at bay in some Asian markets continued to curb activity, she said.

But the currency play for many international buyers was as favourable now as it was leading into the pandemic. Offshore buyers, however, faced the “significant hurdle” of the recent doubling of FIRB fees by the federal government.

Knight Frank head of residential Erin van Tuil said local wealthy clients were preparing to shield themselves from potential global headwinds, and adjust their businesses to account for higher living costs and rising mortgage rates.

“We still see strong underlying opportunities for the Sydney prime residential market over the coming year, such as the volatility in alternative assets including the stock market and cryptocurrency; the significant government investment in transport infrastructure starting to take shape; and the opportunity to create better smart technology homes,” she said.