PHOTO: Nerida Conisbee, Chief Economist at Ray White, suggests that the arrival of high-net-worth individuals may prompt them to explore property options beyond the traditional targets of Sydney and Melbourne. FILE
Australia has secured its position as the most sought-after destination for high net worth individuals (HNWI) with over $1.47 million (US$1m) to invest, according to the Henley Private Wealth Migration Report for 2023. The report predicts that the number of HNWI migrants will rise even further in 2023, with an estimated total of 5,200 individuals expected to arrive. Notably, the report highlights that Australia’s pool of affluent immigrants is expanding beyond traditional sources like China and India to include the United Kingdom.
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The UK’s post-Brexit tax privileges have sparked a “millionaire drain” phenomenon, leading wealthy individuals to seek alternative destinations to relocate their assets. While Australia has consistently attracted a significant number of millionaires from around the globe, this trend marks a recovery from the COVID-19 pandemic era when Australia closed its international borders.
Dr. Juerg Steffen, CEO at Henley & Partners, notes a consistent growth in millionaire migration over the past decade, with global figures projected to reach 122,000 and 128,000 for 2023 and 2024, respectively. Australia is expected to regain its position as the top destination for net inflows, as it was for five years prior to the pandemic, while China continues to experience significant net outflows, as it has for the past decade. The UK and the US are the notable exceptions among former top wealth magnets.
Implications for Australia’s Property Markets:
This data arrives at a time when Australia’s property market is already facing tight conditions. The country’s real estate market benefits from strong demand and limited supply. The stabilization of the property market in early 2023, following the downturn of 2022, can be attributed to consistently low advertised supply levels and an increase in auction clearance rates, which have helped maintain price stability.
An influx of wealthy migrants, especially those capable of investing in the Australian property market, will further strain the already limited supply, preventing prices from experiencing further declines despite rising interest rates and stricter borrowing requirements. Although Australian capital dwelling prices have increased by 1.2% over the past 28 days, they remain 5.1% lower than the previous 12 months. It is highly likely that property prices will continue to rise throughout the remainder of 2023 and into 2024.
Nerida Conisbee, Chief Economist at Ray White, suggests that the arrival of high-net-worth individuals may prompt them to explore property options beyond the traditional targets of Sydney and Melbourne. Premium suburbs are currently leading the recovery in prices, potentially influenced by the influx of wealth into the country. Conisbee also highlights that wealthy international buyers, unaffected by interest rates and accustomed to London prices, might perceive Queensland properties as bargains.
Ongoing Rental Market Challenges:
Due to the supply-demand imbalance, renters are unlikely to find relief in the short to medium term, as substantial increases in housing stock are not expected anytime soon. The continued strength of net migration will only exacerbate the upward pressure on rental values. Tenants facing affordability constraints have limited options and cannot rely on borrowing to cover their rent.
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Some tenants are opting to share rental expenses by re-forming share houses, sacrificing spare rooms or home offices. Those with the financial means are seizing the opportunity to enter homeownership sooner, while others are securing longer leases instead of embarking on the challenging search for new rentals.
Key Considerations for Investors:
Australia’s property market remains robust, driven by low supply and an upcoming surge in demand fueled by incoming overseas arrivals. The current data suggests that there is still value to be found in Australian property markets. Experts advise focusing on investment-grade properties and locations that hold their value in the long term, rather than solely pursuing hotspots or areas experiencing growth spurts.
It is crucial to have a Strategic Property Plan in place to navigate the forthcoming challenges in the property market. Investing in property is a process rather than a one-time event, and the selection of the right location and property comes at the end of this process. Each investor’s needs and preferences differ, so tailoring investment choices to individual circumstances is essential.