Are conditions lifting for Australia's most expensive property markets?

by AB21 Oct 2013

Conditions may be lifting in the premium property markets, despite a year’s worth of data indicating a lull in activity, according to RP Data research analyst, Cameron Kusher.

In the company’s most recent RP Data Weekly Property Pulse, Kusher says premium housing markets – comprising the most expensive 25% of capital city suburbs - have generally recorded a larger correction in values than other price segments, with the recovery rate to-date below par. However, he also says that recent results show premium housing markets are once again beginning to outperform the broader housing market.

The September 2013 RP Data-Rismark Stratified Hedonic home value results showed that, across the most expensive 25% of suburbs, capital city home values increased by 4.5% over the 12 months. As a comparison, the most affordable 25% of suburbs recorded annual value growth of 6.2%, while the middle 50% of suburbs saw values rise by 6.4%.

Kusher says that while the results indicate that capital growth across the premium suburbs fell behind when compared to other market sectors over the past 12 month measure, recent quarterly figures provides evidence that the tide may be turning for Australia’s more expensive housing markets.

The premium market recorded quarterly value growth of 4.1% compared to 3.6% across the middle 50% of suburbs and 2.8% growth across the most affordable suburbs.

“Previous growth and correction phase data shows us that the premium housing market is usually the slowest to respond during the early phase of the growth cycle and it appears that this has once again been the case – we have also seen the largest correction occurring in home values over the past few years within the premium housing market,” says Kusher.

Based on his analysis, several factors contribute to driving demand for premium housing. Kusher says the higher priced sector of the market has seen the largest correction in values coupled with low mortgage rates where now, these homes become somewhat more attainable for purchasers.

“A positive shift in equity markets which is evident in the 19% increase in the S&P/ASX 200 index over the past year has boosted household wealth, coupled with a rise in consumer confidence…Finally, we have seen early indicators of an improvement in business conditions with survey-based results and retail trade showing tentative signs of improving in recent times,” he says.

“Based on our findings, the premium market is experiencing increasing levels of value growth. However, it is largely contained to detached houses rather than units.”

Across the individual capital cities, the annual rate of value growth across the premium suburbs has been weakest across all major capital cities and product types except for Melbourne houses, where the value growth has been stronger than growth for the most affordable suburbs.

Over the past quarter, growth in house values has been stronger than the other sectors for houses in Melbourne and Perth and equal strongest in Sydney.

Kusher says that overall, after a lacklustre performance in the more affordable sectors of the housing market, the premium sector is starting to see a stronger growth performance.