Australia’s luxury homes in Sydney and on the Gold Coast are losing millions in resales in recent months as their owners are forced into selling as the economic crisis exposes their debt.
For the last ten years any home with a view, a chink of water, a canal block or night city lights gained in value faster than the average home.
Australia’s banks were only too happy to fund this notional value way above another home without this feature. After all, we were living in a never ending boom in Queensland and Sydney and Perth, and there would always be someone who had more money than sense when the good times and business profits rolled in. What’s a few thousand dollars extra a month in mortgage payments when you are a high flying executive or a small business owner who has hit a purple patch?
Well the party is over for a lots of those that mortgaged themselves up to the hilt, especially the big spenders in the big end of town and that’s where the Queensland housing market is now at its weakest.
In fact, luxury homes on the Gold Coast beachfront and canal blocks have suffered up to 40% loses in sale values in the last few weeks, and this housing price correction may not have bottomed for waterfront homes on the Gold Coast.
Why Prestige home prices have tanked
There are three reasons why home prices in Prestige areas have fallen.
Firstly, wealthy people gained most in the boom have suffered most in the contraction. There are people that have to sell, with no buyers around.
Secondly, the banks are not lending like they used to. They have tightened up their credit standards and reduced their loan to value ratios, lending less for the same home value than they were 12 months ago.
Thirdly, property valuers are not willing to value views as highly as they were, and tumbling sale prices devalue all the homes around them. This means that because the homes are valued lower, the maximum mortgage loan amount that a bank will lend is reduced again.
What’s interesting is that homes in the cheap end of the housing market is doing well, and the medium priced homes on the Gold Coast that are well located and under $500,000 are doing well in this economy, and for good reason. The mortgages are affordable to any couple on the average income.
A view and steps down to your pontoon is a nice thing to have from any home. But you can’t eat it, or sleep in it. Its value is very whimsical, and you would soon get used to it, and the homeowners who have paid for this home feature are beginning to realise that it only gave a notional value, that is very subjective. It has also put these homes out of the reach of Joe and Jill Average.
If the first rule of real estate is location, the first law of real estate is that real estate is only worth what someone else is prepared to pay for it. And that is invariably tied to how big a mortgage home loan someone can secure. And the answer to that is less than they could get last year on the same house, even if they had the same income.
Home property values in the Prestige areas Brisbane and the Gold Coast may fall further in the coming months so this may be your opportunity to grab a luxury home at turn of the century prices.
