Prestige property market in Sydney and Melbourne suffer falls of 7 to 10 per cent in just three months

Upmarket suburbs near the city or the beach in Sydney and Melbourne have suffered dramatic price falls of close to 10 per cent in just three months following three interest rate rises and anxiety about Labor’s property tax changes.

Australia’s two biggest property markets started to consistently decline in February when the Reserve Bank began hiking rates again for the first time since late 2023.

But the prestige market has taken a particularly big hit in Sydney, Australia’s most expensive market, since the start of the Iran war caused inflation to surge in March, sparking a follow-up rate rise that month and another in May that took the cash rate to a 15-month high of 4.35 per cent.

The nation’s 20 worst-affected suburbs during the past three months have almost all been in ultra-expensive areas where the middle-market house price is typically three to five times the national median of $1 million - meaning typical detached home values of $3m-$5m.

On that list, Sydney had 16 spots, with the rest in inner-city Melbourne, suffering declines of at least 7 per cent over three months.

This was more than double average falls of close to 3 per cent across Sydney and Melbourne during that time, while prestige pockets of Perth, Adelaide and Brisbane suffered small declines in otherwise roaring markets.

Narrabeen on Sydney’s Northern Beaches had the biggest fall since March of 9.9 per cent, taking its mid-point price back down to $3.1m, snapshot Cotality data showed.

Balwyn, in Melbourne’s east, has suffered a price drop of 8.5 per cent to $2.6m, in a state with a higher unemployment rate.

Sydney’s East was the worst affected part of Australia having 10 suburbs suffering huge price drops, mainly in beachside postcodes within Randwick City Council.

The ultra-expensive suburb of South Coogee saw its median house price plunge by 8.9 per cent to $3.9m.

Clovelly, an even more expensive beachfront suburb across the bay, saw its mid-point house price tumble by 7.9 per cent to a touch under $5m.

Nearby areas, closer to main streets with a string of restaurants and pubs, also suffered steep declines with Coogee plunging 7.6 per cent to $4.4m as Randwick prices fell 7.7 per cent to $3.5m.

Nick Simitzis, a sales agent and associate director at Belle Property in Randwick, said prospective, wealthy owner-occupier buyers in his area were taking their time.

“Buyers have definitely been a little bit more, sort of, patient,” he told The Nightly.

“They’re not jumping in unless they find the right property. There’s less urgency to make a move.”

Those buying at the top end tended to be less likely to be suffering from mortgage stress, with waning interest more a reflection on them waiting for prices to fall as prospective sellers held off going to market.

“The high end of the market, typically people are still pretty financially secure — if someone’s spending $4 million or $5 million on a home, they’ve either sold or they’ve got some money,” Mr Simitzis said.

“Real estate’s all about sentiment and buyer sentiment so I think people are just sitting back, trying to sort of gauge where the market’s heading.”

But Nerida Conisbee, the chief economist with real estate sales group Ray White, said diminished borrowing capacity, as a result of the RBA’s three rate hikes, meant prestige homebuyers had fewer options.

“That’s a bit of a myth when people say that the premium market doesn’t rely on mortgages, we know that it definitely does,” she said.

“It is partly the interest rate hikes but it’s also the sentiment hit that has also taken place — it’s a double whammy, I guess.”

Price caps for the Federal Government’s 5 per cent first home deposit scheme are also more reflective of median house prices for each city, depriving the top end of the market of that support.

High-end property buyers are also more likely to be owner-occupiers than investors, who are more likely to be chasing higher rental yields and capital growth.

Nonetheless, uncertainty about Labor’s Budget plans to restrict negative gearing to brand new properties and replace the 50 per cent capital gains tax discount with a minimum 30 per cent tax on inflation-adjusted gains.

“People have quite a lot of anxiety about the future, it’s showing up in consumer sentiment,” Ms Conisbee said.

“It makes people hesitant to spend on a lot of things but yes, spending a lot on a house is also a big factor.”

Prestige homes in other major cities have suffered far less dramatic declines.

Cottesloe in Perth’s beachside west saw its median house price fall by 0.3 per cent over three months, taking it back to $3.4m.

This went against the tide in the West Australian capital where median house prices have still climbed by 4.7 per cent during the quarter.

In Brisbane, inner-city, riverside Hawthorne’s mid-point price fell by 3.6 per cent over three months to $2.3m in a city where prices have still climbed by 3.3 per cent.

Beachside Grange in Adelaide suffered a 0.7 per cent drop, taking it back to $1.5m, in a city with a quarterly gain of 2.8 per cent.

Across all price categories, Sydney and Melbourne were expected to have the most to lose in the coming year.

Real estate sales site Domain is forecasting Sydney house prices to plunge by 5 cent by June 2027 as Melbourne’s equivalent median price plummeted by 6 per cent.

But Brisbane was expected to see growth of 5 per cent, compared with 6 per cent for Adelaide and 7 per cent for Perth.

Australia’s big four banks — Commonwealth, ANZ, Westpac and NAB — are all expecting rate cuts in 2027.

“A gradual recovery is likely from mid-2027, contingent on the first rate cut arriving as forecast,” Domain said.

“If it doesn’t, price weakness could overshoot.”