They should. Booming commodities are the main reason why prices for homes and units above $1 million in the right suburbs are still growing strongly while the broader property market struggles. A sharp correction in commodities - likely in the next 12 months - might also be the catalyst to dull growth in upmarket property prices. The link between resources and prestige property is why this issue of BRW has articles on both markets.
The logic is simple. Strong commodities are boosting the resource sector, which is helping the economy at a time when construction and consumption are easing. This is good for everybody. Strong commodities have also sparked a rally in resource stocks, which is driving the Australian stockmarket to new records. This is especially good for wealthy suburbs for five reasons.
First, the resources boom is creating more jobs, better job security, and higher wages in industries hit by skills shortages. Second, the boom is producing ideal conditions for those directly involved in mining (engineers, geologists and companies that make mining equipment) and those who serve the sector (accountants, lawyers, consultants and bankers who do the deals and raise the money). Third, the stronger stockmarket is a boon for the financial services industry and its fund managers, stockbrokers and financial planners. Fourth, owners of resource stocks have performed well in the past two years, and the majority of them live in wealthier suburbs. Fifth, the resources boom is transferring some wealth and jobs from New South Wales and Victoria to Western Australia, Queensland and parts of the Northern Territory, pushing prices in their top suburbs sharply higher.
In a nutshell, big companies are doing exceptionally well and record company profits are making their way to executives through higher wages and bonuses, and higher stock and option prices. When corporate Australia does well, so does prestige property.
There are other reasons for the growth. Some say upmarket property is largely immune from interest rates, but that is wrong. Lower rates, aside from being good for the economy and stocks, make it easier for those who want to trade up to prestige suburbs. And the prospect of no rate rises this year, or at worst one or two small rises in the second half, provides greater certainty.
Another factor behind the gains is more buying from foreigners and expatriates, and much greater marketing of Australian property overseas as more local real estate agents open offices abroad. There is no doubt the Australian prestige property market is becoming more global, but the effect of foreign buying is probably overstated. What matters most is the health of the stockmarket.
