Australia’s Property Market: A Surge in Cash Purchases

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In a recent revelation, more than one in four properties on Australia’s east coast were bought entirely in cash in 2023, a trend driven by downsizers, affluent buyers, and investors. This significant cash infusion into the real estate market has contributed to property price growth, despite the challenges posed by rising interest rates. According to PEXA’s 2023 Cash Purchases Report, a striking 28.5% of all residential property sales were cash transactions, marking an increase from 25.6% in the previous year, with the total value of these purchases amounting to $129.6 billion compared to $127.7 billion in 2022.

Sydney’s suburbs like Milsons Point, Darling Point, and the CBD have seen the highest proportion of cash purchases, alongside Melbourne’s Carlton and Melbourne postcodes. PEXA chief economist, Julie Toth, highlighted the substantial impact of cash buyers on the market’s resilience. “It is one of the reasons why property markets have proven to be very resilient over the past two years when we have seen interest rates have quite quickly risen in a short space of time,” Toth remarked, emphasizing that cash buyers, unaffected by mortgage costs, have helped sustain high property prices and transaction volumes.

This trend is not just limited to the metro areas but is also evident in regional markets, fueled by retirees and well-off city dwellers seeking lifestyle changes. Notably, high-priced suburbs have witnessed a relatively high number of cash transactions, a pattern that underlines the significant role of wealth and savings in real estate purchases.

Industry professionals have observed a surge in cash buyers, with Daphne Sauvage of Sydney Sotheby’s International noting, “That cashed-up buyer is swooping, and they’re performing quicker and stronger than those relying on loans. It’s certainly accelerating.” Similarly, Alex Phillips of PPD points to downsizers as a key driver of this market, indicating a sustained trend fueled by an ageing population.

The prevalence of cash purchases has implications for market dynamics, potentially exacerbating the intergenerational wealth divide. Those already possessing property and liquidity are poised to have a competitive advantage in future acquisitions, further entrenching disparities. As Julie Toth suggests, the phenomenon of cash purchasers is likely to expand, highlighting the broader socioeconomic implications on market accessibility and equity.

In a market where finance is increasingly becoming a secondary consideration for a significant portion of transactions, especially in the high-end segments, the landscape of property ownership and investment in Australia continues to evolve. As Andrew Macmillan of Jellis Craig articulates, cash buyers are seizing opportunities presented by market conditions, unaffected by the deterrent of interest rates, marking a notable shift in the dynamics of property acquisition and ownership.

References:

Razaghi, Tawar. “No mortgage needed: Suburbs where one in two homes are bought in cash.” https://www.smh.com.au/property/news/no-mortgage-needed-suburbs-where-one-in-two-homes-are-bought-in-cash-20240312-p5fbrn.html