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In the early months of 2017, real estate agent Ken Jacobs was driving through the streets of Sydney, Australia’s prestigious Eastern Suburbs, showing jaw-dropping homes to an American client.
The itinerary included a lavish penthouse in Elizabeth Bay, the historic Elaine home in Point Piper, which sold a few months later for a record-breaking $71 million (about $45 million U.S.) to an Atlassian cofounder, and a waterfront mansion in Vaucluse.
As the pair cruised in a Range Rover, touring the affluent area that is flanked by the Sydney Harbor on the west and the Pacific Ocean on the east, Jacob’s client received a phone call from someone in the United States.
When asked to describe what he was seeing, the American painted a vivid picture. “You’ve got this beautiful waterway and then you’ve got these fingers of land going into the water, so you’ve got all these waterfront homes,” he said on the phone. “Yet the houses that are back from the waterfront, they still have a view because of the contour of the land.”
“It was really interesting to hear him talk to someone else about Sydney after seeing it for the first time,” Jacobs, of Private Property Global, recalls. “I’ve lived here all my life and I have never described it that way.”
It’s no secret that Sydney has some of the world’s most exclusive trophy properties. With its glittering coastline, cliffside mansions and pleasant year-round weather, the city is a beacon for buyers looking for a safe place to park their millions and enjoy the view.
Yet there’s only so much land to go around in these prime areas of the world. And with a dwindling supply of homes for sale in the uber-luxury segment of the market, there’s not enough inventory to meet the growing demand from wealthy local and overseas buyers.
“Spring is historically one of our prime selling times,” Jacobs adds. Although he says there has been a small increase in for-sale properties over the last few months, “I would have thought there could be more stock than there is.”
The stock that is available is selling at a premium.
For the second quarter of 2023, Sydney reported the largest quarterly increase in the sale of super-prime properties over $10 million (U.S.), according to a recent Knight Frank report. Sydney surpassed Los Angeles, Miami and Singapore with 38 super-prime sales for the period.
Over the 12-month period ending March 31, Sydney ranked ninth in the world for super-prime sales with 76. The total value of Sydney’s super-prime sales in that same 12-month period was $1.23 billion (U.S.), with an average sales price of $16.2 million (U.S.).
An array of economic, political and lifestyle factors are contributing to the uptick in demand from domestic and overseas buyers, says Jacobs.
For starters, the weak Australian dollar is enticing Australians who left the country to return and stake their claim. It’s also an attractive scenario for overseas buyers, who can stretch their money further.
Geopolitical tensions in America and Europe are another factor. Australia has always been viewed as a relatively safe and remote place to live and invest. That rings true now more than ever.
“Distance used to be our enemy, but now it’s becoming our friend,” Jacobs says.
Although the luxury market is stable in Sydney, there are noticeable changes in the demand among buyers. This is mainly due to interest rates, though not in the way one might expect.
In the early days of the pandemic, Australia’s Reserve Bank slashed interest rates to a record low 0.1%. This led to a flurry of property sales to people buying in haste because they feared missing a bargain, Jacobs says.
Growing interest rates—now at 4.1% after 12 increases in a 16-month period—have immobilized buyers at the lower end of the Sydney market. The second half of 2022 saw a significant slump in property sales, which is now showing signs of rebounding.
Although the frequent interest rate hikes were impacting some buyers’ access to cash and thus the ability to buy, they were having little to no effect on those who didn’t need to borrow money.
“Two years ago, the market was moving at what I considered to be an unsustainable rate,” Jacobs says. “People were just jumping in because if they don’t buy this one, the next one’s going to be dearer.”
Among elite buyers, there is no longer the fear of missing out. As interest rates stabilize, they are no longer buying just to buy.
Rather, they’re prepared to wait for the right property.