Big drop … this Woollahra property had a list price of $ 13m in
March. It sold for $ 5m at a mortgagee auction last week.
At the end of the property boom in late 2010, a three-bedroom singe
storey cottage facing the waterfront on The Esplanade in
Mosman sold for $ 3.25 million. Two years later in April this
year, it was on the market again. This time the property, which
came with a pre-approved development application, fetched
$ 3,025,000 – a discount for the new owner of $ 225,000.
On the other side of Port Jackson in Wilfield Avenue in
Vaucluse, a plush four-bedroom home went for $ 2.9 million in
2010. Last June it was resold for $ 2,550,000.
On the other side of the city, also in 2010, an ordinary-looking
brick house in
Blakehurst, a suburb south of
Sydney Airport, sold for $ 880,000.
Twenty months later, in May this year, it was on the market again.
This time the Californian bungalow fetched $ 850,000, a discount of
$ 30,000 for the new owner.
These homes illustrate the change in market conditions confronting
spring vendors and buyers.
Home hunters are faced with purchasing in a market where prices
have softened for the past two years and sellers are questioning
whether it is the right time to put a hoarding out in front of the
A swag of reports released this week suggest Australia’s
residential property market is still vulnerable to global economic
conditions and wary, downbeat consumers.
Buyer interest remains soft, sales activity is at historically low
levels and the stock of unsold homes at near-record highs, the
ANZ’s Australian Property Outlook says.
High-profile business failures, insolvencies and job cuts have
heightened concerns over job security in many areas, prompting
households to focus on paying off debt, it says.
Darwin is the only capital city where house prices have risen
over the past two years, says SQM Research’s Housing
Boom and Bust report.
Melbourne suffered the most pain over the same period,
recording a 3.8 per cent fall in values over two years to June
this year, SQM says.
Falling prices have removed the urgency for first-home buyers to
jump into the market and dampened investors’ enthusiasm for
property, two key home-buying groups.
For an industry that relies on glossy brochures, sparkling
picture-perfect homes and smooth-talking estate agents to sell
houses, it’s not the kind of assessment many want to hear.
”Everyone is doing it tough, there’s no question about it,” says
Mike McCarthy, the head of one of Melbourne’s largest real estate
franchises, Barry Plant.
His views are echoed by a Sydney buyer advocate, Patrick Bright. ”I
can’t remember it being as tough as this to transact,” he says,
pointing to the fact that sales volumes are at 15-year lows.
Melbourne, too, is suffering a sales slump. Figures from the Valuer
General show metropolitan home sales fell to a 15-year low in 2011.
Preliminary figures suggest total sales will fall further this
year, marking a new low.
But even before the Melbourne Storm take on the Canterbury Bulldogs
and the Sydney Swans battle the Hawks this weekend, there’s a clear
winner between the two cities.
Off the field in the leafy suburban streets where homes are being
auctioned or sold privately in the spring sunshine, by some key
indicators Sydney is out-performing Melbourne.
”Following modest price declines earlier in the year there is some
evidence that the Sydney housing market is stabilising,” the ANZ
Sydney’s acute housing shortage appears to be propping up rents and
prices. Rental vacancy rates are low and likely to contract; at
last count they were 1.6 per cent, and returns rose 5 per cent over
the year to June, according to SQM.
Median rents now sit at $ 420 for a three-bedroom home.
By contrast, Melbourne’s vacancy rates are on the way up, beyond
their present level of 2.3 per cent. And over the past year, the
city has had almost no rental income growth.
The difference is also evident in trendsetting suburbs.
Median house prices in Sydney’s chic inner-city
Chippendale rose 19 per cent over the past year to $ 905,000,
whereas values in up-and-coming
Brunswick in Melbourne fell nearly 7 per cent to $ 633,000,
according to the property analysts RP Data.
With auction clearance rates consistently staying above 60 per
cent, there is a tangible spring buzz in Sydney. Olympian Matt
Shirvington will be hoping that energy plays in his favour after
listing his 1897 home in Canrobert Street, Mosman, for auction next
Shirvington bought the property for a bullish $ 2.5 million in 2008.
”Anything that’s priced around the median price for a particular
suburb is selling,” says the buyer advocate Bright. However, once a
vendor lists their house for 20 to 30 per cent above the median
price for their suburb, buyers thin out and activity slows, he
One project to ride the recent lift in energy was the $ 440 million
redevelopment of the Swiss Grand Hotel in
Bondi. All but two of the 76 apartments in the first release
in the Pacific development sold on the opening weekend earlier
this month. The sale also got property players at the prestige
end speculating the slump was over.
One buyer is now doing due diligence on buying two off-the-plan
penthouses in the development and merging them into one apartment,
said CBRE’s Justin Brown.
”If that occurs, it will break the Australian record for a single
apartment and be well over the $ 20 million price range,” he said.
After two ordinary years, the prestige market in Sydney is gaining
some confidence, the veteran agent Bill Malouf believes.
More properties were selling during the marketing period, rather
than three months after the initial campaign, he said.
”I think the general public has realised they’re not going to get
flooded with a whole lot of stock.”
But high-end homes were still selling at a discount. LJ Hooker is
asking for $ 8 million for a palatial
Point Piper apartment that previously sold for $ 8.5 million.
While Sydney’s residential construction industry suffocated under
restrictive planning policies and land shortages over the past
decade, population and price pressures super-charged Melbourne’s
apartment and new home market.
That boom is now unwinding.
The scrapping of first-home buyer grants and falling immigration
has resulted in land sales plummeting and high-rise projects coming
off the boil.
”Whilst there is a glut of stock, it’s dead stock,” McCarthy says.
”The problem is there’s not enough new stock coming on. We’re
actually selling all we can get our hands on in terms of new stock
- there’s just not enough of it.”
Both Sydney and Melbourne are unlikely to see any super Saturday
auction weekends this year, when more than 1000 properties go under
the hammer, a common feature of booms.
This week, both cities’ year-to-date clearance rates (the
proportion of homes sold at auction) equalised at 60 per cent, well
up for both on last year’s performance.
”Consumers are still sitting on the sidelines waiting. The market
in some respects is in a bit of a holding pattern,” says Robert
Larocca from the Real Estate Institute of Victoria.
That won’t matter this weekend, as auctions stall in both cities as
punters transfix on the AFL and NRL grand finals. But it will be a
factor in following months.
There is a strong risk that with fewer homes selling and many
first-home buyers and investors sitting on their hands, Australia’s
big banks will be tempted to lower their mortgage benchmarks as
they slug it out to attract customers and take market share from
That’s a scenario the Reserve Bank appears keen to head off, before
a possible cut in official interest rates on Tuesday.
The markets are factoring in a 66 per cent chance of a rate cut ,
and four more to follow by this time next year.
In uncharacteristically forthright language, the Reserve
Bank’s Financial Stability Review this week
warned banks against the lure of relaxing standards.
”With demand for credit likely to remain moderate, a challenge for
firms in a competitive banking environment will be to resist the
pressure to ease lending standards … in the pursuit of unrealistic
profit expectations,” it said.
But the Reserve was less concerned with the flip side of fewer home
hunters taking on new mortgages, and our continued obsession with
thrift and paying off debt.
The ”consolidation of household balance sheets” was ”desirable” for
financial stability and would make indebted households better able
to cope with any future income shock or fall in house prices, the
Reserve Bank said.
Households are going to ”keep on correcting their debt levels
downwards for some time,” says Kim Hawtrey, a director with the
economic forecaster BIS Shrapnel.
People are going to be ”relatively unresponsive to interest rates
cuts” compared with previous times when the Reserve slashed
interest rates. Any pick-up in home buyers’ responding to a rate
cut ”will take longer and be somewhat muted” because of Australia’s
economic situation, Hawtrey says.
That wariness is obvious among buyers, Bright says.
People have stopped stretching themselves, he maintains.
”Instead of borrowing up to their eyeballs, they’re coming in with
According to the Reserve Bank, which recently quizzed the major
banks about the health of their loans, 15 per cent of borrowers are
ahead on their mortgages by two years or more.
”Many borrowers still have sizeable buffers,” the Reserve said.
In NSW, the number of forced home sales by mortgagees is averaging
213 a month. That figure is well above last year’s monthly average
but below its peak in 2010, when borrowers were really stretching
Repossession numbers are murkier in Melbourne, Supreme Court
House and land repossessions peaked at 2051 in June, higher than
A surprising number of home owners who purchased a property in
2009-10 may well be in a situation of negative equity, said a buyer
advocate who is based in Melbourne, Paul Osborne.
”This would be compounded by the further out the property is from
the city centre – or if the property is, say, a brand-new
apartment,” Osborne said. Some of the largest falls in resales
since 2010 have occurred in Melbourne’s leafy eastern suburbs, he
The struggle to stay on top of mortgage repayments is showing up in
A week ago, the blue-chip
Woollahra home of Sydney couple Belinda Tassone and Nick
Leach, the former chairman of the failed airline OzJet and the
firm HeavyLift, sold in a mortgagee auction for $ 5 million.
The Tassone family purchased the property in 2004 for $ 6.15
million. It was first listed in March with price expectations of
$ 13 million.
Last Saturday a house in the popular bayside suburb of Port
Melbourne was snapped up for $ 845,000 after a mortgagee auction.
The single-fronted weatherboard cottage on Farrell Street was
purchased in February by the now bankrupted owner for $ 912,500.
Earlier that morning, the couple who bought the property had missed
out on a similar home around the corner on Clarke Street that sold
at auction for $ 1.025 million.
In Melbourne, buyers were more inclined to ”wheel and deal” after
auction than bid during it, in the hope of getting a better deal, a
buyer advocate, Frank Valentic, says.
Vendors were still struggling to understand that the market has
changed and were not setting reserves that resulted in sales, says
a veteran Melbourne real estate agent, Iain Carmichael.
Home sales were now being driven by family choices around schools,
people relocating for work or couples upsizing or downsizing,
rather than opportunism.
”That’s what a market should be about. It was just that it was so
unreal for so long,” Carmichael says.
”Previously you’d get vendors saying, ‘crikey, our house is now
worth so much more, we’d better sell’. Now they’re saying, ‘we’ll
just sit tight.”’
There was some evidence that consumers had become more positive in
the past month, but ”you need several months of that before you can
call it a trend,” Hawtrey said.
”There are green shoots coming through the concrete but you can’t
see the whole field growing again,” he believes.
In the present property market, baby boomers were in a particularly
awkward situation, according to Bright.
Those wanting to downsize had typically owned their sizeable family
home in a nice suburb for the past 30 years.
As well as having their super docked by falls in equity markets,
they were looking to sell at a time when the higher end of the
market was weaker and the lower end stronger.
”If you’re downsizing, you’re selling at a bigger discount than you
are buying at,” he says.
The biggest future threat to the property market will be the mining
downturn and its impact on trade, SQM’s Louis Christopher
Despite that, Christopher predicts the remainder of 2012 and 2013
is likely to see a recovery in home prices.
”The recovery will initially be modest, but at some point it may
well accelerate … Our opinion is that this will occur in Sydney and
Darwin,” he says.
The Housing Boom and Bust report flags the top
20 fastest income growth suburbs as potential future hot spots.
Localities such as
Darlinghurst feature in Sydney. Several, including
Fremantle, Jerdacuttup and Kings Park in Western Australia
Fortitude Valley and
New Farm are pinpointed in
However, no suburbs are mentioned for Melbourne.
High income growth is usually the main contributor to property
prices, Christopher says.
”The demand for housing in these areas has put an upward pressure
on house prices as the supply of housing in the inner ring
localities is commonly restricted.”
The ANZ’s property report also backs a recovery in the Northern
Territory and WA, where house prices may be ”reaching a floor”.
Housing in Sydney is at its most affordable (excluding the global
financial crisis period) since 2001, ANZ says.
”The dynamic of rising rents along with improved purchase
affordability should encourage both first home buyers and investors
into the purchasing market,” it suggests.
But prices in states with weaker economies –
Hobart, Melbourne and
Canberra in particular – ”remain susceptible to further
falls,” the bank says.
So should home hunters buy now?
”I get asked all the time, ‘Should I hold out? When should I buy?”’
Bright says. ”If you’re buying with a medium- to long-term outlook
- get on with it.
”If you’re buying and selling in the same market conditions, it’s
irrelevant whether the market has hit bottom or not.”
Source: Brisbane Times
Property Management Sydney