Australian luxury home prices may be headed for a fall in 2011, according to an article in Bloomberg Businessweek.

The amount of homes currently for sale in Australia worth A$1 million (US$1 million) or more is about 40 per cent higher than average, according to estimates from the Real Estate Institute of Australia, suggesting that prices may drop in 2011.

"There's about a 5 percent gap in what sellers expect and what buyers are willing to pay," said Perth-based David Airey, president of the institute.

"In the first and second quarters of 2011, there will be a rise in activity as sellers adjust prices down."

The International Monetary Fund also said last week that Australian home prices may be overvalued by 5 to 10 per cent.

The 11 per cent rise of Australia's dollar is deterring foreign and expatriate buyers and the most aggressive tightening of monetary policy in the developer world has raised borrowing coasts.

Prices of the most expensive 10 percent of Sydney properties dropped 7.5 percent in the six months to September, compared with an average 1.1 percent increase in the rest of the market, according to real estate researcher RP Data.

Melbourne's top end property prices fell 10.8 percent in the period, compared with an average 2.5 percent price climb for the remaining homes.

RP Data economist Tim Lawless said that luxury properties were once considered as safe investments during the downturn. "ore recently, however, the premium housing sector has displayed a higher level of volatility," he said.

An auction of homes from A$2 million (US$2 million) to A$10 million (A$10 million) held last month in Sydney by real estat broker Ray White Group sold only two of the 11 homes available.

"The luxury market is certainly softer than what it was," said Dan White, a director at Brisbane-based Ray White.

"There's a lot of speculation about house prices, comments that they're overvalued. And that happened at the same time that rates started to increase. Buyers are now feeling that they can search for value."