Prime residential price growth to slow in 2023

Prime residential property prices in Sydney and Melbourne are expected to remain flat next year, after performing well in 2022, according to a new report.

Knight Frank’s Prime Residential Forecast for 2023 predicts Sydney’s prime residential real estate, which are properties valued above $3 million, will be flat in 2023, while Melbourne’s values will decline by just one per cent.

According to Knight Frank, Sydney’s prime values have increased five per cent over the course of 2022, while Melbourne increased four per cent.

Sydney was also tipped to be the fifth most popular location to buy a luxury home next year, behind London, New York, Dubai and Singapore.

Knight Frank Head of Residential Research Michelle Ciesielski said transactions were starting to slow down at higher price points across Sydney.

“Although we saw Sydney luxury residential sales volume seven per cent higher in the second quarter of 2022 (A$3 million plus), the third quarter 2022 volume has now tapered back 24 per cent and this is likely to continue as we head towards the NSW State Election,” Ms Ciesielski said.

“This lower sales volume will continue to impact price growth momentum in 2023, but interestingly, active prime residential listings remain low at a time when not much is being built, so we’re expecting Sydney’s prime price growth to pick up again by 2024.”

Ms Ciesielski said demand from international investors was still not at the same levels seen in previous years.

“Lingering travel restrictions are still creating much lower prime residential viewings in Sydney from international buyers despite being an attractive safe haven to many,” she said.

“However, geopolitical tensions looming and the firm stance on keeping COVID-19 at bay in some Asian markets continues to curb activity. 

“The currency play for many international buyers is as favourable now, as it was leading into the pandemic, but the recent doubling of FIRB (Foreign Investment Review Board) fees by the Federal Government is a significant hurdle when considering this top-end of the residential market.”

According to the report, Dubai is expected to perform the strongest in 2023 of the 25 major cities analysed, with price growth expected to reach 13.5 per cent. 

Dubai’s prime property values have surged 50 per cent this year on the back of a strong few years.

The US cities of Miami and Los Angeles occupy second and joint third spot on the list, but the forecast growth has dipped in the past six months as recessionary fears strengthen, fixed mortgage rates in the US have exceeded seven per cent and, in Los Angeles, a Mansion Tax is being considered for homes priced above US$5 million.

European cities rank highly in 2023, occupying six of the top 10 rankings with Dublin, Lisbon, Madrid and Paris leading the way. Despite, or perhaps because of, the eurozone’s impending recession, safe haven capital flight looks set to bolster prime markets in the year ahead. 

Singapore is the only Asian city in the top 10 and one of only four cities whose forecast has climbed in the past six months. 

New visa measures and the government’s efforts to attract more family offices are helping to position the city-state as Asia’s regional wealth hub.

In October 2021, Knight Frank predicted Sydney and Melbourne would grow by nine and seven per cent respectively over 2022.

Knight Frank’s Head of Residential Erin van Tuil said despite slightly underperforming expectations, there are still opportunities for investors.

“We still see strong underlying opportunities for the Sydney prime residential market over the coming year, such as the volatility in alternative assets including the stock market and cryptocurrency; the significant government investment in transport infrastructure starting to take shape; and the opportunity to create better smart technology homes,” Ms van Tuil said.

“As our Australian private wealth clients are increasingly agile once again, they’re also spending time preparing to shield any potential turbulence from global headwinds and tackling the impact of increased living costs and rising mortgage rates for their business activities. 

“Many clients have already factored in part of this risk by spending the best part of the last two years building and rebalancing their domestic property portfolios.”

According to Knight Frank, the top risks for prime property in 2023 are rising mortgage rates, geopolitical tensions, higher taxes, currency movements and an undersupply of luxury homes.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.