Cash Buyers are Boosting Sydney's Luxury Real Estate Market

Sydney's real estate market is seeing a unique trend as it experiences a drop in home values, but a surge in demand and big sales of properties in the luxury segment. Knight Frank’s 2023 Wealth Report revealed that prime property values in the top 5% of home values increased by a modest 1.1% throughout 2022, while property values throughout Australia's capital cities declined by 12.1%, according to CoreLogic data. These trends have been attributed to the high proportions of cash buyers in the luxury market, particularly from foreign countries like China, Hong Kong, Singapore, and Vietnam.

Erin van Tuil, Knight Frank Australia’s head of residential, explained that much of Australia's economy is being driven by cash buyers, with the country having more high-end cash buyers than the international average. The proportion of cash buyers among prime market buyers is believed to be around 60%, compared to the international average of 49%, according to Knight Frank's research. This is due to the capital appreciation money that's already available in people's properties. She noted that there's less impact from the interest rate movements in the prime market, making it behave differently from the general market.

The tightly held stock of prestige property also plays a crucial role, as many wealthy homeowners don't want to or need to sell. According to Monika Tu, founder and principal of Black Diamondz, a luxury property brokerage, roughly 70% of her deals are cash purchases. Returning expats and foreign buyers, particularly those from China, Hong Kong, Singapore, and Vietnam, are actively purchasing properties valued over A$25 million. These buyers view Australia as a safe haven offering relatively stable market conditions that can withstand international uncertainties. Notably, prime market purchasers are able to weather almost any storm, said Ms. Tu. This factor impacts the traditional supply-and-demand trends. In Sydney's wealthy suburbs where these people don't have to sell, demand is always there, particularly from overseas. The demand for property in Sydney is overwhelming and shows no sign of abating.

The Sydney International director Michael Pallier added that beyond rising interest rates, prestige buyers are influenced by other factors as well. This boom in cash buyers has made the luxury market immune to interest rates movements and changed the overall narrative of Sydney's real estate market. The affluent headcount in Australia is set to grow further by 30.9% by the middle of this decade. Consequently, the luxury real estate market in Sydney is poised to remain robust, drawing wealthy buyers from all over the world for years to come.