The Perth prestige market is presenting a close resemblance of a two-tiered market, influenced by ongoing uncertainties in construction timing and pricing. Traditionally, the prestige sector is robust and somewhat resilient to severe market fluctuations, with major shifts in global markets, share prices and commodities generally being the biggest influences causing the most impact to residential values.
Steady Ascent
Over the past half-decade, the Perth prestige sector has seen a steady rise in property values, notably surging from 2020 onwards. Among these is the example of 9 Salvado Street in Cottesloe, a development site, improved with a small residence coming to the end of its economic life, primly positioned three blocks from the famous Cottesloe Beach (south). This block transacted for $4,600,000 in December 2020 and more recently, transacted for $6,750,000 in August 2023, showing a not-so-modest increase of 46.7% over this short period.
Construction Challenges
However, beyond traditional market influences, the construction industry’s evolving landscape is shifting the way the market in the prestige sector is performing.
In recent years, the construction industry has faced significant challenges stemming from efforts to counteract the impacts of Covid-19 on the property and labour markets, as well as the broader economy. Supply shortages of materials blew out construction times and high demand for the materials escalated costs. Many builders suffered from under committed fixed cost building contracts and the industry succumbed to loss of established industry leaders over this time.
As such, a lot of apprehension has been ingrained into the general population over the building and construction industry, which saw dwelling approvals plummet. In February 2024, national dwelling approvals sat -13.5% below the decade average (Source: Corelogic).
New Builds vs. dated Homes
In the context of the Perth prestige market, new builds generally attract prolonged construction periods and higher material costs, reflective of their larger scale and higher quality tendency. Likewise, dated or older style homes requiring maintenance, being extensive or not, pay higher material costs given their size and quality.
The results? Newly or recently constructed homes in these prestige locations are attracting hefty sale prices and the market is seemingly happy, or even overly keen, to pay these levels. Contrary to this, older homes requiring maintenance are being left behind in this trend, highlighting a clear contrast in the market.
A Glimpse into Market Dynamics
Examining prominent examples, we head back to the popular suburb of Cottesloe were 20A Deane Street has recently gone under offer for a whopping $15,500,000. This newly constructed home boasts quality fixtures, fittings, and outdoor improvements. However, it sits on a relatively small block size (577sqm) in a non-premium street without ocean frontage, which typically command higher prices. The land alone was sold for $2,000,000 in August 2021, with the house built subsequently.
Similarly, in the popular beach side suburb of City Beach, 28 Challenger Parade has recently gone under offer for upwards of $11,000,000 (price not yet disclosed). This property provides a 2019 built home, along with all the bells and whistles of a high-level construction. Similarly located homes have rarely cracked above $6,000,000 in the previous 3 years.
In summary, the prestige market in Perth craves well built, high quality, contemporary homes. It seems few buyers want to spend the money renovating older dwellings, nor wanting to wait for construction of a new house. The newer homes in the prestige sector are performing incredibly well, while the rest of the stock has somewhat balanced.