Will 2024 see the luxury property market bubble finally burst?

20/12/2023 | Australian Property Markets.news

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While Aqualand’s $1B luxury residential tower, AURA by Aqualand in North Sydney, nears completion, the leading Australian integrated property development group consulted Chief Economist, Nerida Consibee, to see what’s in store for luxury property in 2024.


While Sydney’s luxury apartments have outperformed the market and proved an outstanding investment for a decade, they asked Nerida if AURA’s strong sales performance is likely to continue into 2024, or will the luxury market’s bubble finally burst?


According to Nerida, reviewing sales data from the past decade reveals a fascinating shift in lifestyle preferences, with luxury Sydney apartments experiencing double the rate of growth of the market. While median priced Sydney apartments increased in price by an impressive 42%, apartments priced in the top 5% increased by a staggering 87%.


“Perhaps the most fascinating contributing factor in the meteoric rise of luxury apartments, albeit only one of several, is the move away from Australia’s deeply ingrained preference for freestanding homes, for while luxury apartments outperform regular apartments, the same doesn’t hold true for luxury houses,” said Nerida.


“Over the past decade, house prices in the top 5% of the market have seen equivalent growth to those priced at the median, suggesting that it isn’t just a premium location that drives up the value of luxury homes.


“It also points to a slower preference shift with apartment living becoming far more popular over the past decade, across a wide range of demographics,” Nerida added.


Which begs the question, does this signal the demise of the ‘Great Australian Dream’? The desire for every family to own their own freestanding home on a suburban block has been a pervasive symbol of success for generations.


“There’s been a longstanding misconception that house prices always outperform apartment prices. However, apartments in Sydney’s most desirable suburbs, even at lower price points, have outperformed houses in less expensive areas. In some cases, this is becoming even more marked over time,” Nerida said.


“So, now we’ve established luxury apartments have been a strong performer in the past, what’s the outlook for 2024? Well, there’s several other factors to consider in the absence of a crystal ball.


“There’s currently a distinct shortage of luxury Sydney apartments for sale. An analysis of real estate transactions over recent years shows a dramatic reduction in apartments sold over $3M since the pandemic. Initially, this decline was driven by the post-pandemic slowdown in demand, however it’s since changed and a lack of properties for sale is particularly problematic.


“There’re several reasons for this drop. The first being the pipeline for new developments is very low. Building approvals in Sydney have been falling for quite some time now. Property developers continue to struggle with local governments on town planning, particularly in highly desirable suburbs where premium buyers want to live. Even if projects are approved, dramatic increases in construction costs have made many projects unviable in the short term, leading to the unfortunate demise of many building companies.


“Even with ambitious guidelines put in place by the Federal Government in regard to housing supply, Sydney is unlikely to see high levels of development for quite some time. It certainly won’t get back to the high levels of supply experienced towards the end of the last decade.


“Over the next three years, luxury apartment prices will be buoyed by a shortage of properties on the market, a lack of new projects being approved, and construction challenges. Demand is expected to continue outstripping supply off the back of continued population growth. These factors will continue to mean price growth for apartment prices across all price points.


“A longer-term factor, however, are the changes to apartment living in Australia. Over a prolonged period, most apartments developed in Australia were aimed at younger people and designed to be rented or owned before buying a house. Apartments were commonly seen as a compromise if a stand-alone house wasn’t affordable. Apartment living now, however, is deemed a far more attractive option, and often seen as preferable, across all age groups and income levels.


“This ranges from older downsizers wanting a lower maintenance property, to families wanting to live close to amenities, good schools and their place of work. This demographic has been critical in buoying pricing over the past decade and will continue over the next,” said Nerida.


Aqualand has reaped the rewards of Sydney’s high-end property surge experiencing over c. $350M in sales from its three luxury projects, BLUE at Lavender Bay, The REVY in Pyrmont and AURA by Aqualand in North Sydney, since January 2023.


Aqualand’s internal construction arm, Aqualand Construction, has generated confidence and stability for buyers in a market beset with uncertainty.


“With the construction sector’s current state of uncertainty, it’s crucial for developers to get projects out of the ground to maintain confidence in the market,” said Nerida.


“Developers who maintain end-to-end control of their pipelines, or have internal construction capabilities, will be well-placed to deliver quality projects to an undersupplied market. With record immigration inflows we’re looking down the barrel of a rental and housing crisis.

“Aqualand’s success in managing its construction pipeline internally serves as a testament to the importance of adaptability in the face of adversity.


“Meanwhile, another win for Aqualand is that North Sydney, in particular, has seen strong market activity.


“North Sydney and the suburbs immediately north of Sydney Harbour continue to outperform,” added Nerida.


Aqualand’s Head of Sales and Marketing, Alex Adams, said the strong sales at AURA reflect the unique offering they’ve created, and he believes it’s a positive sign the broader luxury apartment market in Sydney will outshine other property throughout 2024, and for some time to come.


“AURA has achieved over $200M in sales since January… a sure sign of the city’s unwavering demand for high-end apartments,” said Alex.


“We’ve experienced month-on-month growth since November 2022 with a spike in sales every month this year, so we don’t see much change, if any, next year.


“The strong sales across all apartment types at AURA have been strengthened by major public domain improvements, transport development and the robust growth potential of North Sydney more broadly.”


An AURA buyer recently purchased two adjoining 4-bedroom sub penthouses for $12M. Another purchaser secured two four-bedroom apartments, selling for $7,115,000 and $7,250,000 respectively, as well as a three-bedroom apartment for $4,975,000.


“AURA’s performance is a key indicator of the robust luxury market, setting the stage for another exceptional year next year,” Alex added.


Meanwhile, Aqualand’s other luxury projects, The REVY in Pyrmont has exceeded $20M in sales and over $100M has been achieved at BLUE at Lavender Bay this year, with both luxury projects expected to sell out soon.


“For those able to transact in this market, there are strong indicators for further growth in Sydney apartment prices over the medium- to long-term.


“There’s a dire shortage of stock, while persistent rental shortages will only add further pressure.


“The upward trend will continue to create demand for well-located, high-quality apartments and the opportunity to invest in a project nearing construction completion, such as AURA, is extremely attractive to buyers.


“Our buyers also understand what a unique offering AURA is. It really is incomparable to any other projects on the north shore for so many reasons, including its close proximity to so many top-tier private primary and secondary schools.


“In addition to onsite parking, residents will have convenient access to the future Victoria Cross Station next door or use the exclusive pool of Tesla electric vehicles we’re providing,” added Alex.


Meanwhile, Aqualand has just completed the fit out of five display apartments on level six of AURA, so buyers can experience the quality of the fittings and fixtures firsthand and get a real sense of the various layouts and spaces.


Fully furnished by Space, Poliform and Samsung, the apartments come in a range of configurations, and visits can be booked with AURA’s sales team.


“These stunning apartments give a real sense of the luxury lifestyle our buyers are looking forward to. The views are amazing, the spaces generous, and the natural light is plentiful,” added Alex.


“Each apartment has its own distinct personality, allowing different buyers the ability to easily imagine their new home as they embark on the next stage of their lives.”