Sydney’s Prestige Market Remains Strong

While interest rates and cost of living pressures may have caused growth to slow a little in the overall Sydney market, it’s a different story for prestige property.

Growth finally seems to be slowing down a little in Sydney’s border property market: the result of high interest rates, economic uncertainty and rising cost of living pressures, as well as increases to supply. However, it’s a different story in the prestige property market, where strong demand and few listings mean prices continue to surge.

In fact, Knight Frank’s latest Prime Global Cities Index showed Sydney’s prestige market continued to rise – growing by 3.1 per cent in the year to Q2 2024 – at a time when growth was slowing in many of the world’s prestige markets.

We explore why Sydney’s prestige market remains so strong.

The fragmenting of Sydney’s property market

We’ve often said there is no one Sydney property market but many. Different suburbs and property types have different drivers. The factors impacting the value of, say, a one-bedroom apartment in Potts Point won’t be the same as those affecting the value of a six-bedroom harbourside home in Vaucluse.

For example, in most of the market, interest rates play a significant factor. When they rise people can afford less and borrow less, and this puts a natural drag on price growth. Cost of living pressures and inflation also can play a role, especially if they’re not accompanied by wage growth.

After all, the more people need to spend on the necessities, the less they have to spend on a home. And the more they have to spend on their home, the less likely they are to buy an investment property.

Factors impacting Sydney’s prestige market

At the top end of the market, however, demand isn’t affected by interest rates in the same way. Few people take out an 80% mortgage on a $15 million home.

Despite prices being higher in this segment, it’s actually where we see the most cash buyers. So instead of interest rates, it’s factors such as exchange rates, the overall health of the economy and the share market at play.

Because overseas buyers tend to be overrepresented in this segment, it’s also often impacted by policies elsewhere in the world.

On this front, we’ve recently seen strong growth in the number of overseas buyers entering the Australian market. Many have decided to enter the Australian market after COVID restrictions have ended worldwide.

Some are expats who work in finance centres such as London or New York, or have decided to leave more volatile parts of the world, such as Hong Kong.

What they all have in common is that they tend to see Australian prestige property as a safe investment.

Supply the real issue

But despite the many elements driving the demand side of the prestige property equation, for some time the one consistent in Sydney’s premium market has been a lack of supply. NAB put it succinctly in their mid-year Luxury Property Update, saying “a lack of quality prestige product has limited purchase opportunities”.

Population growth (and income growth at the top of the income tree) means more people competing for prestige property across Sydney. However, there has not been the same kind of lift in the number of prestige homes.

There are only so many prestige suburbs (although the rise of the eastern beaches has increased the number) and so many prestige properties for sale. This is particularly true of harbourside homes where there is only so much foreshore to build on.

When there aren’t enough top end homes, there also tends to be a lack of movement in the prestige market – people who would sell don’t because they have nowhere to move to. This becomes self perpetuating, and leads to fewer and fewer prestige sales.

Creative solutions to a lack of supply

The solution, of course, is to build more prestige property. And, we’ve noticed a few trends on this front, with prestige buyers and developers getting more creative with both apartments and houses.

First, there have been a growing number of knock-down rebuilds happening across the eastern suburbs, where modest homes are replaced by prestige ones. In fact, it’s difficult to find a street in some parts of the eastern suburbs right now where a new build isn’t taking shape.

Second, we’re seeing more properties being amalgamated – these are usually two or more apartments being joined together to create a more luxurious residence, adding to the city’s prestige stock. Sometimes, we even see terraces joined together into one residence, or two freestanding homes on prime land replaced by one.

Finally, there are a growing number of boutique, luxury developments taking shape across the city’s east, in suburbs such as Double Bay and Bondi. These tend to be hotly contested, often selling out soon after coming to market.

Given the incredible demand from downsizers for luxury apartments, as well as recent changes to Sydney’s planning laws, It’s likely that this is a market segment that will continue to outperform.

Strength in Sydney’s premium market set to continue

This year to date, we have already seen some incredible prices achieved in the eastern suburbs prestige market. As the year began, two $80 million sales in Point Piper and Elizabeth Bay were quickly followed by a second $50 million sale in Point Piper. Vaucluse and Rose Bay both have had $40+ million sales, and Bondi had an apartment sale for $23+ million.

With demand still high and the number of prestige properties low, it’s likely that the current strength in Sydney’s prestige market will continue for the foreseeable future.

We have recently listed the magnificent Iona, at 2 Darley Street, Darlinghurst. This seven bedroom, circa 1880 Victorian Italianate mansion sits on a rare 2,716 sqm estate in the heart of this inner city suburb. It offers vast internal living proportions of approximately 1,035 sqm, complete with a commercial grade kitchen. Brimming with heritage features and contemporary additions like plenty of off-street parking and a pool, it is set in an exclusive cul-de-sac, 20 minutes’ walk to the CBD.

Want more?

If you’re interested in buying or selling prestige property in Sydney’s Eastern suburbs, get in touch.