Competition intensifies at the lower end as luxury homes weaken further

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While the beachfront mansions and other luxury homes have seen demand fall off after being hit hard by the financial crisis, the lower to middle range properties are seeing demand increase dramatically.

In Melbourne, for example, the bottom sector has even gained in value over that time period, boosted by the resurgence of the younger first homebuyer sector.

"There's already mounting evidence that first homebuyers are venturing back into the market and reasonably priced stock is starting to move," said Tim Lawless, national research director with RP Data.

"The competition for reasonably priced and strategically located properties is likely to intensify over the coming months as the window of opportunity closes at the end of June with regard to the increased First Home Owner Grant. Investors will be competing for the same housing stock as first homebuyers, due to the low risk profile and strong yields these properties provide," said Lawless.

The healthy demand at the lower is in stark contrast with the poor performance of top end properties. Once considered safe havens, demand for Australia's prestige homes have fallen sharply and is set to weaken even further amid the worsening impact of the global financial crisis.

The top 10% of properties based on price have shown the largest decline in median prices over last year according to RP Data. In Sydney, the median price of the top 10% of properties has dropped by almost 20% to $1.29 million in December 2008."

Melbourne prime properties recorded a 15% drop in values while Brisbane saw a 9% drop in value for the top end properties.

Lawless said the combination of margin calls, plunging share markets and company profits hitting rock bottom as well as lower executive bonuses made it harder for people to service such a high debt.

"Without any real improvement in business conditions in sight just yet, it is likely that demand for prestige homes will remain relatively low. This segment of the market is forecast to be one of the weakest along with the tourism-driven markets during 2009," he said.


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