Weekly economics update

This week I take a look at where we are seeing the most expensive houses and apartments being sold, as well the mismatch between unit prices and their rental levels.

Where can I find a luxury home?

I probably don’t need to tell you where to find an expensive home, however our most recent analysis into where the most $3 million homes are being sold doesn’t exactly correspond to our most expensive suburbs. If you are after the opportunity to spend a lot of cash on a beautiful property, where are some places worth looking at?

Topping the list for the suburb with the most house sales is not surprisingly Mosman with 184 sales. More surprisingly is that there are a number of suburbs that topped the list that are yet to hit a $3 million median. In particular, Maroubra had 61 sales over the past 12 months. Overall the mix of suburbs were predominantly leafy parts of Melbourne and Sydney.

The luxury apartment market shows the value of a Sydney view. The median price for a unit in Manly is just over $1.5 million however 46 apartments were sold with a price over $3 million. The only suburb on the top 10 list for the most $3 million plus apartment sales is Main Beach on the Gold Coast. While historically the Gold Coast has been a market with strong demand for lower cost holiday apartments, right now it is more expensive apartments that are selling particularly well.

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The unit price / rental mismatch

Lockdowns are bad news for rents. COVID hits older Australians health but as we have seen, has generally had a minimal impact on their wealth. And while young people get less sick, lockdowns are a heavy burden on their income. Given that most renters are young, a lack of income hits rental markets. This is further exacerbated by a lack of foreign students, major occupiers prior to the pandemic of high density suburbs close to universities.

While we are yet to see what the rental hit will be in locked down states, we have seen that a corresponding drop in values for the most impacted suburbs is not occurring. In the Melbourne CBD unit market, where rents have dropped 28% over the past 21 months, we have seen only a seven per cent decline in values. More surprising is in Carlton where values have risen 40% over the past 12 months, despite a 15% drop in rents.

What is driving this disconnect? Cheap finance, strong confidence in the outlook for property values, very few distressed owners and a view that rents will recover once lockdowns are a thing of the past. But with most of the high density suburbs located in locked down Melbourne and Sydney, and no imminent sign of open international borders, it is likely that this disconnect will continue for quite some time.

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