Prices of luxury homes in Australia may decline next year after listings of properties worth over A$1 million climbed by 40 percent, which is more than the average for this year, said the Real Estate Institute of Australia.
“There’s about a 5 percent gap in what sellers expect and what buyers are willing to pay,” said Perth-based David Airey, president of the institute. “In the first and second quarters of 2011, there will be a rise in activity as sellers adjust prices down.”
The International Monetary Fund (IMF) said last week that Australia’s home prices may be overvalued by 5 percent to 10 percent. An 11 percent gain in its currency this year is discouraging expatriate and foreign buyers, while the most aggressive tightening of monetary policy in developed markets has increased borrowing costs.
According to property researcher RP Data, prices of the most expensive properties in Sydney fell 7.5 percent in the six months to September, compared with an average 1.1 percent advance in the rest of the market. Prices of top-end properties in Melbourne also dropped 10.8 percent in the period compared with an average 2.5 percent price increase for the remaining homes.
Luxury properties in Australia “were once considered to be safe havens during a downturn”, said Tim Lawless, economist at RP Data. “More recently, however, the premium housing sector has displayed a higher level of volatility.”
“The luxury market is certainly softer than what it was,” said Dan White, a director at Brisbane-based Ray White. “There’s a lot of speculation about house prices, comments that they’re overvalued. And that happened at the same time that rates started to increase. Buyers are now feeling that they can search for value.”
Though the number of properties listed for sale will unlikely rise further in 2011, volatility will stay until confidence in worldwide markets returns, said Mr. White.
John McGrath, chief executive of Sydney-based realtor McGrath, said the company has seen a 50 percent increase in listings from the same time in 2009.
“The market above A$1 million is a buyers’ market now,” said Mr McGrath. “There is underlying strength, but people are cautious. And if in doubt, these buyers will stay put till there’s more certainty.”
A recovery of 5 percent to 10 percent can be expected in the top end of the market in 2011, mainly in the second half as economic confidence returns, he said.