Sydney property market cools with auction clearances at 10-month low

A man walks past residential houses in Sydney, Australia.
A man walks past residential houses in Sydney, Australia.PHOTO: EPA

SYDNEY (BLOOMBERG) - Sydney's surging housing market may be cooling with the proportion of home auctions that successfully found a buyer last week falling to the lowest level in 10 months.

Sydney's auction clearance rate, a gauge of housing demand in Australia's largest city, fell to 66.6 per cent for the week ending Oct 18. That was the lowest level since December 2014 and well below a peak of just over 90 per cent in April, according to property researcher CoreLogic.

The waning buyer interest comes after home values soared 44 per cent in the three-years to Sept 30, reducing affordability amid a regulatory clampdown on mortgages and slowing wage growth. Westpac Banking Corp, the country's second-largest mortgage lender, on Wednesday (Oct 14) increased home loan rates to owner occupiers for the first time in five years as it raised A$3.5 billion (S$3.5 billion) in equity capital to meet stricter capital rules.

"Buyer interest is dropping as bank lending tightens," said Mr Jay Bacani, a real estate agent at Ray White in Baulkham Hills, a suburb in north-western Sydney. "They are also concerned that other lenders may follow Westpac in raising rates. It is definitely getting harder to sell a property."

Australia's over-heated housing market could be starting to slow while rapid home construction in some areas is creating an oversupply, the central bank said in its semi-annual assessment of risks to the country's financial system on Friday. Economists from Macquarie Group and Bank of America Merill Lynch are predicting a fall in prices over the next two years because of increasing supply and lower-than-expected population growth.

After calling the housing market unbalanced, the Australian Prudential Regulation Authority in December urged lenders to limit investor home-loan growth to 10 per cent a year and in July it said the largest banks would need to increase the capital they need to hold against potential losses on mortgages from July 2016.

The regulatory tightening has slowed growth in lending to landlords with such loans as a proportion of total mortgages dropping below 50 per cent in August for the first time since July 2014. The measure fell to 48.5 per cent from a peak of 53.5 per cent in May.

The number of bidders at each home auction has dropped to between three and five from as many as 15 three months ago, while the number of people viewing a home at its first open inspection has fallen to between seven and 10 from about 30, Mr Bacani said.