Farewell boom, property slows -AFR today article

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Article from todays Fin Review.



Farewell boom, property slows
Nov 2
Mathew Chandler and Jemima Whyte

There is clear evidence that Australia's long-running property boom is winding down.

Auction clearance rates tumbled in October, ranging from a miserable 43 per cent in Perth to an improved 69 per cent in Adelaide.

Results from the key markets of Melbourne and Sydney bring no promise of a return to boom conditions.

According to Australian Property Monitors, auction clearance rates in the biggest property market, Sydney, dropped to 64 per cent in October - a figure close to what some consider the turning point in its cycle. Rival research house CPM had the clearance rate at 67 per cent, but recorded fewer auctions.

But the number that clearly demonstrates falling confidence is best highlighted by the Sydney apartment market.

Investors appear to have heeded the Reserve Bank's warning of the sector's high prices and increasing stock levels. Figures released by CPM on Friday suggest clearance rates for the Sydney unit market fell to 65 per cent - from a high of 87 per cent in April.

And, while no-one is losing money yet, there is a clear sign buyers are no longer prepared to drive prices higher.

According to CPM, the October results provide evidence of lower average prices across each of the sub-sectors.

The average price for houses during the month fell by almost $50,000 to $886,000.

In Melbourne, research house Charter Keck Cramer said the warning signs are there. Its research shows demand for medium density apartments has begun to ease.

It also reported an "observable increase in the number of 'for lease' boards appearing on properties" in the established housing market. This is "unusual and an indication of increasing desperation to find tenants in order to maintain rental income".

Charter Keck Cramer also pointed to other hazards. Increasing land prices have reduced affordability and slowed trade. So, too, has an increase in construction costs for new homes.

Australian Property Monitors operations manager Louis Christopher said the heat had undoubtedly gone from residential markets.

"I don't think we're in danger territory yet," he said.

"Assuming the Reserve Bank doesn't lift interest rates in the next six months, it's looking likely we are coming in for a soft landing," Mr Christopher said.

On Friday, Commonwealth Bank chief executive David Murray repeated the bank's concern about the "run up in house prices".

"I think people must clearly understand the contractual commitments they enter into and feel comfortable about their capacity to repay," Mr Murray said after the bank's annual meeting in Sydney. "I'm more inclined to the view the market will soften and we'll not see a dramatic fall.

"Nevertheless, we've done a stress test on our portfolio and it is exceptionally well placed to deal with any fall in asset values."