Economic Update

This week, Ray White Chief Economist, Nerida Conisbee looks at luxury home sales, which are set to hit a new record in 2021, as well as the upcoming stampede to the shops – what it means to retail property and to residential prices.

Luxury home sales set to hit a new record in 2021

What price point defines a luxury home? The price cut off is arbitrary but for this analysis, I am defining anything priced over $10 million as being luxury. For that price point, you would be able to get a very nice home in our most expensive suburbs. In 2021, we are looking at seeing the most luxury home sales ever recorded, forecast at 769 sales. Not surprisingly, most of them (72 per cent) are in Sydney with Sydney also seeing the biggest increase since 2016. More surprising is Brisbane where there has been a doubling of $10 million plus sales over the same time period.

The places where luxury home sales are taking place are not surprising. Topping the list is Mosman, followed by Vaucluse and Toorak. Over the past five years, there have been three new additions to the top 10 list of suburbs with the most luxury sales – Tamarama, Palm Beach and Centennial Park. Dropping off the list were Rose Bay, Woollahra and Hawthorn (Melbourne). The top three remains the same however in 2016, Toorak had the most $10 million plus sales. This has now dropped to third.

What is driving the high number of luxury sales? From the demand side, similar drivers to the overall market would be playing a role – very low interest rates and high savings rates. In addition, there are parts of the economy that have done exceptionally well through COVID including technology, mining and agriculture. On the supply side, anecdotally, downsizers are now seeing now as an ideal time to take advantage of particularly strong price growth conditions.

Get ready for a stampede to the shops

People in lockdown don’t spend much and this week’s retail trade data for August has not surprisingly shown a reduction in spending in locked down states. The lack of desire to spend spread to areas that weren’t locked down and only Perth and Adelaide recorded an increase. This weak retail spending will continue into September. However once Sydney opens up next week and Melbourne gradually relaxes restrictions, we are going to see a stampede to the shops, particularly as we head into Christmas.

While great news for the retail industry, it will be a challenging time for retailers. Stock shortages are going to be a problem with significant shipping bottlenecks occurring globally. There are also potential challenges with labour shortages. Zero migration is starting to cause problems in the agriculture and building sectors. It is likely retail will have similar challenges.

The return to spending will be great news for shopping centre owners who have had a particularly problematic time since the start of the pandemic. It will however mean a reduction in household savings, which becomes very high in lockdown. Given how much people have been funneling savings into property, the return to the shops, combined with APRA’s announcement of increased stress testing for borrowers this week, will slow residential pricing as we head into the remainder of the year.