Performance of Top end vs Middle vs Bottom end ?

Any views on whether in the long term properties in these 3 categories behave differently in terms of Cap growth? Any research would be most interesting as I have yet to come across analysis that takes a large sample size (most seem to pick just a particular high end property and talk about its rise and falls).

One school of thought is the Top end generally experiences the greatest volatility. The application of this would be for example with the stage that Sydney is in on the property cycle, the Top end would be the best value to buy out of the 3 categories in the next few yrs.

There's also the nuance with whether its a top end apartment (e.g. the ones in the "toaster building" at Circular Quay in Sydney) vs. a top end house and generally Top end properties have a level of uniqueness with them that can make it difficult to generalise.

Definitions of the 3 categories taking Sydney as an example:

• top end =$3m+
• middle = $1-3m
• bottom end = <$1m

These are rough thresholds and obviously if in another cap city they would be different. I haven't found a mkt definition for different levels of the mkt so happy for others to supply one.

 

I think over an extended period of over 30 years, there isn't all that much of difference between the top and bottom of the market in terms of growth. I remembered in early 90s 2br apartments in Liverpool and Cabramatta were selling for 50k, now its goes from 400k to 550k, thats 10x increase. I doubted that the fanciest suburbs like Linfield, Point piper and Mosman are doing much more than that percentage wise.

 

Article in today's AFR (subscription). House in Wahroonga sold for $13m with previous sale in 2011 for $6.9m.

Article does not mention how much is spent on capital works, refurbishment or annual maintenance.

 

Thats the other problem i find too, comparing historical sale records on a property can be misleading as there could be capital works spent on it

 

Hmmm, not sure about the point piper stuff but I do know you can get a $300k house in lindfield relatively easily in early 90s. They are worth high $2m to $3m+ now so thats still a similar 10x growth compared to the Liverpool stuff. But this doesnt include any renos etc over the yrs.

Another interesting question is with Liverpool at say $500k and Lindfield at $3m now, will they still grow to the same multiple over another 30 yrs given its now at a much higher starting point?

 

If we use the past as a reference then yeah, why not... unless there's a huge disruptive social economic change, there will always be similar portion of wealthy and the not so wealthy.

 

If we see inequality continue to worsen, then the top-end will do better. The rich will do better than the middle-classes, and will spend relatively more on property.

If the government reins in wealth, then the top-end might fall relative to the middle.

 

I think over time it all stays pretty relative. It's more the short term where you might see one part of the market outperform another. It's often the case that high end properties lead a good market and hurt most in a weak market.

 

This is true about competition in general for every market. At the bottom end, there are a small number willing to accept high risk/high returns in the dodgy end of @dattosville (wait, there's a good end?) Then there's the mass market (FHB & mum/dad investors). When it comes to larger purchasers, it is only those with the access to capital ie < 10-20% who can dabble in the $1.5+ market and as those numbers increase, there are fewer buyers again this may be high net worth individuals, cashed up super funds, Syndicates, partnerships and specialist vehicles .

 

That depends on where, you are talking about median prices in sydney at the 1 to 1.5 mil.

 

I think it can be expected that the higher the value the more volatile the prices will be. That's generally how things are in any market.

When the value is high enough that the demand is low, value is generally seen in the eye of the purchaser. Whereas the lower end of the market will always be on a more stable market 'trend' as there's a lot more demand.

 

So good time to buy this in Syd now?

31 Milson Road, CREMORNE POINT, 2090 - Black Diamondz

 

I was talking to my pool reno guy this morning. He said he had just completed building a 280,000 litre pool/spa/waterfall (basically a resort-style pool).

Just the cost of the pool was $250,000. One needs to add the cost of landscaping, pool fencing, etc.

Apparently, an existing tennis court even had to be re-located .

 

Not really my thing, but I'll take it off their hands for $50K.

 

Come on Graeme, I'd at least pay $100k for it! Can charge a pretty dollar airbnb-ing each room with that view

On a slightly more down to earth note, had nothing to do last Saturday so was walking around a few open homes in lower north shore area for houses that were around $3-4m mark.

The more attractive properties (not on main street, built to good spec) still had plenty of people going through. Others had less foot traffic. But what I thought was odd is after I asked the agent for a price guide, most of them said "guidance is $X, but we've had no offers yet so if you're interested, get your offers in!". Desperate much?

 

I do wonder whether homes that get spec'ed to the nines actually make any return. Potentially biased but the very top end houses that end up on the news ($10m+) dont seem to fair very well. Good thing the owners probably arent relying on cap growth...

 

I think they do it for lifestyle; they don’t do it to make money .

 

Finally found some data!
Value Growth For Expensive Properties Is Slowing Fastest

Looking at Sydney and Melbourne where they've got the transactional volume for more credible results, the top 25% always hits the troughs more than the other sectors but shares the peaks with the Low 25%.

Based on the graphs its hard to tell if there is any major difference in performance for the top vs low priced properties over a long period of time. Its also difficult to say whether the top is more/less volatile than the bottom. However, it seems safe to conclude that the middle 50% is less volatile so if volatility is not your thing, that's the sector to go for

Couldn't find definitions on what constitutes the the low/mid/top categories, but suffice in a downturn, higher priced properties appear to drop the furthest.

Now everyone go out and pick up some mult-million dollar bargains in Syd and Mel!