Sydney Luxury Home Seeks Record Price as 2014 Boom Forecast

Houses in Vaucluse
Water-front houses stand in Vaucluse, a suburb of Sydney. Photographer: Ian Waldie/Bloomberg

A Sydney harborfront estate, set on six land titles, is on the market in what could become Australia’s most expensive house sale ever, amid forecasts prices in the city could soar by as much as 20 percent in 2014.

The Fairfax family, founders of the company that owns the Australian Financial Review and the Sydney Morning Herald, are selling the house, Elaine, which is set on 6,980 square meters (75,132 square feet) of land. The listing, which the Herald said could fetch more than A$100 million ($94 million), comes as SQM Research Pty yesterday forecast home prices across Australia’s major cities will jump as much as 11 percent next year.

The Reserve Bank of Australia’s record-low 2.5 percent benchmark rate is boosting demand for dwellings in the city amid a dearth of properties, as the number of homes on the market dropped 15 percent from a year ago, SQM said in a report. Luxury property sales have also picked up, with two houses going for A$33 million and more than A$50 million this year.

“The Reserve Bank of Australia will be placed in a difficult position with regard to interest-rate settings sometime between the second and third quarters of 2014,” Louis Christopher, managing director at the property researcher, said in the report. “Would they lift rates if it was just a few cities experiencing growth beyond 7 percent? Would they lift rates if unemployment was still rising?”

The RBA, which has lowered borrowing costs by 2.25 percentage points since late 2011, said yesterday that it retains the option of reducing interest rates. It also said the effects of earlier cuts haven’t fully materialized. Sydney, where dwelling prices have jumped 8.3 percent this year, recorded an auction clearance rate of 84.3 percent last weekend, according to figures from researcher RP Data.

No Bubble

RBA Assistant Governor Malcolm Edey warned against being “unrealistically alarmist” in calling a bubble as demand for homes strengthens. Home prices have risen at a rate similar to or less than the growth in household incomes over the last 10 years, he said at an event in Sydney today.

“Within that trend, however, inevitably there will be cycles, there have been periods where that ratio’s been rising, periods where it’s been falling,” Edey said. “We’re in one of the higher-than-average periods at the moment but we shouldn’t be rushing to reach for the bubble terminology every time the rate of increase in house prices is higher than average.”

‘Stellar Performer’

While Sydney has been a “stellar performer” over the past six months, its rate of home price growth isn’t sustainable, said John McGrath, chief executive officer of McGrath Estate Agents, which recorded A$7 billion of property sales in the year to June 30. McGrath predicts prices will rise between 5 percent and 10 percent over the next 12 months.

Sydney’s median price was A$679,500 for houses and A$519,750 for apartments as of Sept. 15, according to RP Data.

Investors are driving the rise in housing demand, accounting for almost half of home loans in New South Wales state negotiated by Australian Finance Group Ltd. in August, the highest level ever recorded in any state, according to the nation’s biggest mortgage broker.

Sydney has seen a 32 percent surge in residential rents since 2008, according to a report by broker Savills Plc. The city is among the five cities with the highest-yielding residential markets, at 4.8 percent, the broker said.

Record Price

The Fairfax family’s seven-bedroom mansion in Double Bay, a suburb about 4 kilometers (2.5 miles) east of Sydney’s center, is rented until early next year, and will be open for inspection when the tenants leave, said Ken Jacobs, Sydney-based managing director of Ken Jacobs Real Estate, the Australian affiliate of Christie’s Great Estates, which is selling the home.

Jacobs declined to estimate a sale price. The property could sell for more than A$100 million, the Sydney Morning Herald newspaper said yesterday, citing industry experts.

“There’s not been a waterfront of this size come to the market that I can remember,” Jacobs said in a telephone interview yesterday. “It’ll set a new Australian record. There’s no comparables to work from.”

Australia’s most expensive home, in the Perth suburb of Mosman Park, sold for A$57.5 million in 2009. Another home, in the affluent eastern Sydney suburb of Vaucluse, is on the market with an asking price of A$60 million, the Herald reported last month.

Christie’s will conduct a global marketing campaign for the Fairfax property, he said.

Chinese Demand

Demand from Asian, particularly Chinese buyers, is also driving Sydney home prices higher, McGrath said last week. More than 80 percent of purchases were made by Chinese buyers in some parts of the city, with Asians making up all, or the majority of, registered bidders at some auctions, he said.

Qiu Yafu, chairman of Chinese company Shandong Ruyi Scientific & Technological Group Co., bought the Bang & Olufsen house in the eastern suburb of Point Piper for A$33 million, the Australian Financial Review said on May 8. Chaimovich Investments, which listed Melbourne-based Ding Xiuzhen as sole director, lodged a hold on Altona, which had previously been listed for as much as A$59 million, in March according to a government filings.

High, Low

SQM forecasts an increase of as much as 8 percent in Perth, 7 percent in Melbourne and Brisbane and 6 percent in Adelaide, Hobart and Darwin in 2014 in its base-case scenario, which assumes no more than one 25 basis-point interest-rate cut by the central bank. Only Canberra will see declines, of as much as 4 percent, it said.

Under a scenario that assumes a strong economic recovery and interest-rate increases in mid-2014 or earlier, SQM forecasts price growth as high as 30 percent in Sydney, as much as 15 percent in Perth, 12 percent in Brisbane and 11 percent in Melbourne.

In a scenario that assumes a crash in Australia’s terms of trade, rate cuts of at least 100 basis points and a local currency below 80 U.S. cents, SQM forecasts prices will still rise by between 4 percent and 7 percent, with Sydney recording increases of as much as 15 percent. Only Perth, Darwin and Canberra will probably see declines under that scenario, it said.

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