The absence of foreign homebuyers, including those from mainland China, in Australia's property market has not prevented Sydney from copping the crown of being the world's top prime property market, with prices rising 10% as of June this year, according to property consultancy Knight Frank.

Prime properties are those that are in the top 5% of each market by value and deemed to be the "most desirable and expensive in a given location", according to Knight Frank. The Australian city is also likely to share the top spot with London next year, with luxury property prices forecast to rise 7 per cent for both cities in 2022.

"Every quarter since March 2013, Sydney's prime residential market has recorded positive annual price growth, demonstrating the ongoing undersupply of luxury prestige homes being built whilst our ultra-wealthy population continues to rise," said Michelle Ciesielski, partner and head of residential research at Knight Frank Australia.

Sydney's rise to the top comes despite the Covid-19 pandemic, various property cooling measures Australia has imposed in recent years to tame runaway home prices, and a deepening rift between Beijing and Canberra that is perceived to have turned off Chinese buyers from Australian property. Instead it has relied on its super-wealthy locals - those whose net worth exceeded US$30 million excluding their primary residence - to prop up its property market.

Last year, the number of super-rich Australians grew by about 11% to 3,124 and is estimated to grow annually by 3.8% over the next five years, the property consultancy said. In the last quarter of 2020, property sales in the country's prime region hit 1,224, a record high. On the other hand, completed luxury homes in Australia declined by 4% to 26,700 in 2020 from the previous year.

In 2019 and last year, the city was ranked 4th and 3rd, respectively, globally in terms of luxury property price increases. From 2008 to 2018, average luxury property prices in Sydney grew 60%, third behind only Berlin and Vancouver.

"Since the start of the pandemic, Australia has experienced a decline in international buyers, yet luxury property prices have continued to outperform with local wealthy buyers expanding their portfolios," Ciesielski said. "The pandemic has allowed more time for people to consider and secure their future living arrangements and Australian cities provide a desirable lifestyle, transparency in ownership and world-class education facilities."

Canberra has restricted foreigners from buying properties that are only newly built to give more locals the opportunity to buy the more affordable homes. Since this measure and other initiatives were imposed, the share of foreigners' contribution to home purchases in Sydney has declined to an estimated 2.3% last year from 9.5% three years ago, Ciesielski said.

The worsening tensions between China and Australia have also dampened the appetite of mainland Chinese buyers for Australian property, with investments declining by 29% in 2020, according to Real Capital Analytics (RCA), which tracks deals worth at least US$10 million. Total investment in Australian property both from state-owned and private enterprises in China reached US$935.5 million in 2019, falling to US$664 million last year. As of the first quarter of this year, it was down to just US$22.7 million, according to RCA. The data tracked deals involving income producing real estate such as offices, industrial and retail buildings, hotels, rental flats and development sites for commercial and residential projects.

"We have noticed the absence of mainland Chinese buyers, but the market has not been affected by this," said Sydney-based Ken Jacobs, who manages his own property agency and is an affiliate of Christie's International Real Estate.

Meanwhile, Hong Kong was ranked third and tied with Los Angeles in the latest forecast, with an estimated 5% growth in luxury property prices.

"Despite four waves of the virus, Hong Kong's luxury residential market has proved resilient, with several transactions of note taking place in The Peak and Mid-Levels [areas] in the first half of 2021. Economic forecasts have been revised upwards, 43% of the population has now had their first vaccination and sentiment is improving with capital flows from the Chinese mainland a key driver. We expect the prime residential price could grow another 2 to 3% in the second half of 2021," said Martin Wong, head of research and consultancy at Knight Frank Greater China.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.