Kay & Burton Market Report | October 2023

MARKET REPORT OCTOBER 2023

42.9%

LOW STOCK BOLSTERS AUSTRALIAN MARKET

Australia’s property market began the fourth quarter ranked 10th in the world as the global value of real estate reached an incredible US$380 trillion. Simultaneously, the local landscape saw a return to the A$10 trillion mark (after briefly dipping below the benchmark it first achieved in June 2022), according to Savills World Research.

It’s no surprise, then, that bricks and mortar remain our greatest store of wealth.

CoreLogic’s national Home Value Index marked an eighth consecutive

monthly rise for homegrown property in September, up 0.8% after an increase of 0.7% in August.

Total listings volumes remain slim—around -23.4% below the previous five-year average by CoreLogic’s numbers—despite new listings rising in the lead up to the spring season.

It’s this lack of quality supply that Kay & Burton’s Managing Director Ross Savas said will buoy property prices for the rest of the year.

“There seems to be a lot of positivity in the property market. Interest rate increases didn’t impact the market the way many had expected, and people are still very interested in buying and

Produced by Kay & Burton

Editorial by Kristen Craze

Increase in Chinese-based searches for Victorian property on realestate.com.au.

Ross Savas Managing Director, Group Board Member

“The strongest price point across Australian property is the $10 million-plus market. Luxury real estate is outperforming any other segment.”

—Ross Savas

Jamie Mi Partner & Head of International Division

investing in real estate,” he said.

“We’re still in a low turnover market but the last quarter’s results have been strong. Confidence among buyers is out there, but vendors still aren’t putting their homes on the market en masse. As a result, there’s a shortage of good quality real estate being listed, and that trend is likely to continue.”

While the spring selling season is typically the most active time on the real estate calendar, the unprecedented events of the past three years are still leaving their mark.

“I think the spring market will be strong, but with stock under typical seasonal levels, we probably won’t see as much of an uptick in sales during October,” Mr Savas said, adding that there is one price bracket outperforming others.

“The strongest price point across Australian property is the $10 millionplus market. Luxury real estate is outperforming any other segment.”

The strong activity has been evidenced by Kay & Burton’s string of 10 sales above $10 million this quarter, contributing to the 34% market share held in this price range across Stonnington, Boroondara, Bayside and the Mornington Peninsula.

And it’s a solid wave of immigration that has ultimately made a positive impression on local property prices.

“International purchasers are embracing Australia with open arms and there is interest coming from all corners of the globe,” Mr Savas said. “Their

presence is really bolstering demand, especially in Melbourne – which is on the receiving end of the lion’s share of immigration – as well as Sydney and Brisbane.”

Partner and Head of International Division at Kay & Burton, Jamie Mi, furthered this sentiment, stating there has been a steady stream of overseas buyers arriving Down Under.

“We saw international purchasers really warm towards Australian real estate last quarter and expect to soon see the results in our top end of the market from a flood of new faces that arrived in August and September,” Ms Mi said.

Recent foreign investment data shows Chinese homebuyers averaged a $6.3 million spend per day on local residential property across nine months to October, and Ms Mi says Melbourne homes are in the hot seat.

According to the Federal Treasury’s Foreign Investment quarterly report, released in June, China-based buyers purchased 1775 Australian homes totalling $2.3 billion between July 2022 and March 2023, topping the list of offshore buyers. In comparison, Chinese purchasers spent $2.4 billion on 2317 homes in the 2021-22 financial year.

Additionally, statistics from PropTrack reveal Chinese-based searches for Victorian property on realestate.com.au increased 42.88% in the last financial year, compared to the previous 12 months. However, the UK, New Zealand and the US still recorded higher buyer search numbers than China on the property portal. .

Global rank by value of residential real estate ($USD). Source: Savills World Research

“Turnkey freestanding family homes are in extremely high demand and achieving prices as strong as we’ve ever seen.”

—Darren Lewenberg

5.4%

UNLOCKING THE SPRING MARKET: TURNKEY HOMES LEAD DEMAND

While all eyes were concentrated on the RBA’s official cash rate movements during the first three quarters of 2023, another scenario has been playing out in the background.

Vendors have held off listing their homes in the wake of softer market conditions while an increasing group of international arrivals has been setting their sights on local luxury real estate and local buyers sought turnkey properties. As a result, the tight supply scenario is keeping top-end prices stable.

With demand set to outweigh available stock, this spring and summer should prove fruitful for those Melbourne sellers who are ready to list.

STONNINGTON

Any talk of a slowdown in the property market has been diluted due to the combination of low stock levels and high demand for quality homes in the Stonnington area, especially from qualified international buyers.

Currently, there appears to be a two- to three-speed local property market, according to Director Darren Lewenberg of Kay & Burton Stonnington.

“Turnkey freestanding family homes are in extremely high demand and achieving prices as strong as we’ve ever seen. Those properties requiring a renovation, or a total build, still have interest albeit certainly not to the same frenetic levels as we’ve previously had,” he said.

However, with analysts predicting construction costs have peaked and increased certainty surrounding building costs, confidence is poised to rebound among those considering undertaking a project.

“Then you have the apartment market, which is transacting, however properties are taking longer to sell often with a single buyer scenario.”

Although unrenovated homes and apartments are proving to be more price sensitive than move-in ready properties, solid results are achievable with the right strategic sales approach.

The vernacular has shifted from early 2023 discussions about interest rates and building costs to the challenges of low supply. This ‘new normal’ of low stock levels will continue to be the overwhelming theme through spring and into summer, according to Mr Lewenberg.

“I’m a believer that the green shoots of positivity shall emerge through these selling seasons. My expectation of a strong spring should become the catalyst for those discretionary sellers who’ve been absent from the market for the previous 12 to 18 months.”

The listing which has already captivated the market this spring is 14 St Georges Road, Toorak—a landmark Mediterranean Georgian Revivial-style mansion on the market with a $46-$50 million price guide.

Some Stonnington suburbs are defying the odds, with Toorak notching 5.4% price growth in the past 12 months according to PropTrack data.

Three standout sales include 15 Vista Grove , Toorak, which sold within its $13-$14 million price guide, as well as 3 Avalon Road, Armadale, exchanging between its $15-$16.5 million price guide. And an off-market transaction on Toorak’s St James Place which exceeded both these sales.

Darren Lewenberg Director

Toorak’s house price growth over the past 12 months.

Demand for homes priced above $5 million has not waivered over the past 12 months, according to Sam Wilkinson from Kay & Burton Boroondara.

“If anything, demand has strengthened in this segment, contrasting what’s happening for homes in lower price sectors. The prestige market just continued its strong performance throughout the June quarter,” he explained.

However, interest in one section of the market has cooled.

“The appetite for families to buy an old house and knock it down, or renovate, has dropped off somewhat in the past year. Most families invest heavily to reside here so they can be conveniently located near popular schools. A two- to four-year planning and construction timeframe eats significantly into the window of those schooling years,” he said.

This coupled with an increase in construction costs and supply constraints meant the resulting trend has

been a desire to pay a premium for the luxury of a move-in ready four- to fivebedroom home, Mr Wilkinson added.

“Boroondara’s prestige homes which are fully renovated or newly built in the past decade are consistently selling under strong buyer competition,” he said.

Transaction volumes in the June quarter were similar to those over the same period in 2022. This time last year, Australia was amid a continued interest rate spike which was still causing jitters as the market prepared for spring.

“Now rates appear to have plateaued, prices at the very least have remained stable leading to a stronger sense of positivity around capital growth in the medium term. ‘Well-heeled’ buyers are searching for the best homes amid a supply shortage. There will be some prices achieved this spring under intense competition that will define the market and may surprise some people,” Mr Wilkinson said.

Highlights for the quarter included two new suburb price benchmarks achieved. The Connault at 41-45 Yarrbat Avenue, Balwyn, sold within its $12.5-$13.5 million price guide, while Kirkland at 89 Union Road, Surrey Hills, set a record following its sale above $6 million.

Balwyn and Balwyn North have been two of the municipality’s best performers, recording 2.9% and 4.3% growth respectively in the past 12 months, according to PropTrack.

BOROONDARA

“There will be some prices achieved this spring under intense competition that will define the market and may surprise some...”

Sam Wilkinson Licensed

Estate

Agent

—Sam Wilkinson

Will Maxted Associate Partner

“We’re also seeing vendors are generally wanting longer settlements; 90 days or more is becoming quite common,” he said.

Across Melbourne’s Bayside neighbourhoods, luxury property is defying wider market price corrections. This bucking of the overall trend comes down to the supply versus demand equation, said Associate Partner Will Maxted of Kay & Burton’s Bayside office.

“There’s a sense of positivity returning to the general market, given the recent hold on interest rates by the RBA.” he explained.

Last year and earlier this year, Mr Maxted said buyers were hesitant to make a move given the fast-paced interest rate climate. Although, as the year progresses, sellers turning into buyers are now opting to purchase their next home before listing due to the lack of stock.

“We anticipate a high volume of competition for good quality A-grade assets through spring and beyond, and stock will remain fairly tight. It’s a great time for vendors to capitalise on what is still a very strong market.”

Mr Maxted said additional themes running through the Bayside suburbs this spring include strong demand for the few turnkey properties on the market and solid interest from multiple parties on blue-chip assets priced from $5 million.

“While the median price in Brighton of $3.21 million (according to PropertyData) is slightly under the heights of 2021, our prices are currently around 30% higher than our prepandemic (May 2019) levels,” he said.

The Bayside team recently achieved an almost $6 million result for a ground-floor apartment at 2/33 Sussex Street, Brighton, which sold for $1.3 million more than its previous preCovid exchange. .

“...our prices are currently around 30% higher than our prepandemic (May 2019) levels.”

—Will Maxted

75%

potential changes in land tax regulations. Additionally, the recent uptick in interest rates has made owning a second property more costly in certain instances.”

MORNINGTON PENINSULA SPRINGS BACK TO STABILITY

Although the years directly following Covid-19 saw the Mornington Peninsula market accelerate at great speed, 2023 has been operating at a more usual pace.

The last quarter was quieter due to low stock levels as globetrotting vendors took overseas holidays to escape winter, but spring has seen vendors and purchasers re-engage with the Mornington Peninsula market.

“We started seeing buyers reemerge as spring approached,” said Lorna Duffy of Kay & Burton’s Portsea

and Sorrento office. “In particular, those we’ve dealt with previously who perhaps missed out on a property or had not found what they were looking for.”

Ms Duffy said concerns about interest rates and negative press around the economy may have been a factor for the post-Covid demand to settle, however the Peninsula was somewhat insulated due to the discretionary purchasing nature of buyers.

“Lifestyle properties that tick the sea-change and holiday-home boxes are still in high demand,” she said. “We’re also noting demand for properties requiring little to no work and are available for immediate enjoyment. This is evidenced by last quarter’s sales; 75% were older homes that had been fully renovated.”

Kay & Burton Flinders Director Andrew Hines also noted the heightened spring activity was evident, citing appraisals were up compared with this time last year.

“Several factors contribute to this increase, with one of the primary reasons being the anticipation of

Acreage was another type of property high on the priority list for buyers. This demand was likely to stem from the fact larger properties offer the advantage of engaging in agricultural activities, which can grant buyers an exemption from land tax.

“Given recent increases in land tax, this exemption has become an attractive option for those seeking a secondary residence,” Mr Hines said.

The greater Flinders market remains distinctive and is likely to continue to stand out due to its unique position within a green wedge zone. The suburb has been one of the Mornington Peninsula’s top performers, with its $3.65 million median house price increasing by 5.9% in the past 12 months, PropTrack data shows.

“In this region, the supply of properties is severely restricted and subdividing either farms or residential parcels is nearly unfeasible. Consequently, the interplay of supply and demand will act as a safeguard for property prices on this side of the Mornington Peninsula.” .

Andrew Hines Director - Flinders

Lorna Duffy Senior Sales Consultant

of last quarter’s sales were fully renovated homes.

SYDNEY’S BOOMING OFF-MARKET ACTIVITY

In Sydney, it’s a tale of two cities as markets on either side of the harbour set their own pace.

Kay & Burton Sydney’s Associate Partner and Buyers Agent Bill Laing said while the Eastern Suburbs have experienced high-profile deals with a “healthy” amount of stock, segments of the North Shore were grappling with a scarcity of available on-market properties.

“There’s pent-up demand to secure quality homes in blue-ribbon locations. As a result, many buyers are frustrated by the lack of options so have engaged representatives to unearth off-market opportunities, of which there are plenty,” he said.

Mr Laing noted buyer’s agents represent clients for roughly 35% of prime and super-prime transactions in Sydney, with the majority of those deals conducted off-market.

“The past quarter’s two most expensive deals were conducted off market at $60 million and $70 million and buyers without representation wouldn’t have been exposed to these luxury offerings,” he said.

Heightened activity for the top end in winter was set to extend into spring with an uptick in appraisals set to appease some of the stock concerns. Meanwhile, demand was only set to grow due to a combination of a weakened Australian dollar and increased capital inflow from Asia propelling Sydney to the top of the list for returning expatriates and international investors.

“We are fielding enquiries from many expats looking for buyer representation to capitalise on the currency exchange advantage,” Mr Laing said.

“Despite a noticeable uptick in interest rates, the prime and super-prime real estate markets in Sydney continue to witness consistent price growth. The number of ultra-wealthy individuals, with a net wealth exceeding $US30 million, is expected to surge by 40.9% over the next five years.”

In a result that set a new benchmark for apartments in the city this year, Kay & Burton Sydney sold a grand 298sqm amalgamation of two sub penthouses at 1001/15 Young Street for $14 million in September. .

William Laing Associate Partner

Buyer’s agents represented 35% of prime & super-prime buyers in Sydney.

Sales via buyer’s agents

Sales direct to buyers

Darren McMullin Partner, New Business & Corporate Leasing

As Asian and European clients continue to relocate to Melbourne, their search activity has buoyed interest at a variety of price points.

Record tight vacancy rates contrast high appetite

Since CoreLogic first started tracking Australia’s rental vacancy rate back in 2006, the market has never been tighter. By September’s end, the capital city vacancy rate sat at 1%, while the regional figure was 1.2%.

Rental market conditions have specifically narrowed in cities hardest hit by the pandemic as locals and overseas arrivals returned to metropolitan areas. In Melbourne and Sydney, vacancies have more than halved, falling 4.14 and 2.21 percentage points respectively in a year.

“We’re experiencing extremely low vacancy rates for the areas in which we operate. This indicates the market is still performing extremely strongly, hence why we’re achieving some impressive results,” said Darren McMullin, Partner, New Business and Corporate Leasing for Property Management at Kay & Burton.

During September, national rents increased a further 0.7%, taking rents 6.4% higher over the first nine months of 2023, and 8.4% above the past 12 months.

Mr McMullin added that in the lead up to spring, there had been a spike in investment properties converting to the sale market due to increased holding costs for investors.

“We’re also achieving more offmarket results through the management of our internal database and low stock levels mean higher than market rents are being achieved,” Mr McMullin said. “Our prediction is, we’ll have a busy and active spring with enquiries for properties increasing on a weekly basis. Additionally, more rental providers will likely list their properties during the warmer months which is consistent with the sales market.”

Rental demand has been highest for quality family homes around Stonnington, Boroondara and Bayside, which are commanding between $2000 and $6000, according to Mr McMullin.

A recent property leased through Kay & Burton was G04/23 Millswyn Street, South Yarra, which achieved a $3,500-per-week agreement following just two weeks on the market with interest from multiple parties received. .

LUXURY DEVELOPMENTS IN DEMAND

Buyers of luxury apartments are back in the market, however supply remains limited.

According to Knight Frank’s Australian Residential Development Review, the total value of major sites disclosed for potential construction across Australia was $7.2 billion by December 31, 2022. Compared with the year prior, that value was down 20%.

“There’s a shrinking number of newly completed, high-quality luxury

apartment developments coming to market and demand is growing,” said Kay & Burton’s Director of Projects, Damon Krongold.

Research from PropTrack has shown that overall buyer demand on realestate.com.au was unseasonably high in July, and enquiries for new developments in particular had increased significantly. Total enquiries were up 8% year-on-year, but the greatest demand was for new developments, an increase of 16% on last year. And ultimately, Melbourne apartment projects were the most sought after in the country.

Mr Krongold said high on the wish lists of luxury apartment buyers were extras such as environmentally friendly inclusions like EV chargers, but more than ever the calibre of project partners was key.

“The architect and interior designers attached to a project have always been a key factor for prospective purchasers, but now the pedigree of the

developer and builder is also a major consideration in the decision process,” he said.

A return in buyer confidence also meant developers were picking up their pace.

“There are a couple of luxury offthe-plan boutique developments coming to market now which are stimulating interest, particularly in Toorak and The Domain Precinct, such as 49 Walsh Street, South Yarra, by Neometro,” Mr Krongold said.

“The strength of the market for trophy assets is extraordinary so we are expecting high demand for the 10 homes which form Neometro’s most significant project to date.”

Recent sales of note by the Kay & Burton Projects team include apartments 3 and 6 of 547 Toorak Road, Toorak, as well as 2,4 and 5 of 700 Orrong Road, Toorak – all priced between $3 million and $6 million. .

Damon Krongold Director - Projects

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