December 21, 2010, 8:33 PM EST
By Nichola Saminather
Dec. 22 (Bloomberg) — The number of Australian homes worth A$1 million ($1 million) or more listed for sale is about 40 percent higher than average for this time of year, Real Estate Institute of Australia estimates, suggesting price cuts 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.”
Australia’s house prices may be overvalued by 5 percent to 10 percent, the International Monetary Fund said last week. An 11 percent advance in the Australian dollar this year, the second biggest among Group of 10 nations, is deterring foreign and expatriate buyers, while the most aggressive tightening of monetary policy in the developed world raised borrowing costs.
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.
Australia’s luxury properties “were once considered to be safe havens during a downturn,” RP Data economist Tim Lawless said. “More recently, however, the premium housing sector has displayed a higher level of volatility.”
Auction Flop
An auction of homes ranging from A$2 million to A$10 million last month, held at the Sydney Opera House by real estate broker Ray White Group, sold only two of the 11 homes on offer.
“The luxury market is certainly softer than what it was,” Dan White, a director at Brisbane-based Ray White, said in an interview. “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.”
While the number of properties listed for sale is unlikely to rise further next year, volatility will remain until confidence in global markets returns, said White.
John McGrath, chief executive officer of Sydney-based realtor McGrath, said his company has seen a 50 percent increase in listings from the same time last year.
‘Buyers’ Market’
“The market above A$1 million is a buyers’ market now,” McGrath, whose company now has 37 offices in New South Wales, Queensland and Canberra, said. “There is underlying strength, but people are cautious. And if in doubt, these buyers will stay put till there’s more certainty.”
There will be a recovery of between 5 percent and 10 percent in the top end of the market next year, primarily in the second half, as economic confidence returns, said McGrath.
Demand for homes between A$2 million and A$5 million in particular has been slow, said Chris Curtis, managing director of Sydney-based buyers’ agent Curtis Associates. Professionals including investment bankers, accountants and lawyers — the most likely buyers in that range — are waiting out the uncertainty surrounding the U.S. and European economies, he said.
More properties are selling before auction, “a sign of vendor nervousness,” Curtis said, with some sellers willing to cut prices by as much as 15 percent.
U.S., Europe
The U.S. is struggling to maintain a sustained recovery as mortgage foreclosures mount and the nation’s unemployment rate hovers near 10 percent, prompting fears of a double-dip recession. Uncertainty over Europe’s economic health lingers after Ireland last month followed Greece in seeking a European Union bailout.
Overseas buyers’ demand has dried up after the Australian dollar reached parity with the U.S. currency in October for the first time since 1982, said L. Janusz Hooker, chief executive officer of Sydney-based real estate broker LJ Hooker.
LJ Hooker, which has 695 offices across the Asia-Pacific region, had about 23 percent more listings in November compared with a year earlier, according to data from the company.
“We had a robust first half and have seen a slowdown in the second half,” he said. “Investors typically look at the bigger trends, the U.S., Europe, and these have been one element contributing to that. There’s also a big portion of properties that have unrealistic pricing and this needs to come off.”
Record Sales
The market is “patchy,” with some strong sales still taking place, according Ken Jacobs, managing director of Sydney- based real estate agent Ken Jacobs, an affiliate of Christie’s Great Estates, which has the world’s biggest network of luxury property brokers.
An eight-bedroom mansion in Portsea, a resort town some 120 kilometers (75 miles) south of Melbourne, sold for more than A$25 million on Dec. 13, a record for Victoria state, according to Gerald Delany, executive chairman at Melbourne-based real estate broker Kay Burton Pty, which handled the sale. The A$52 million September sale of Villa Veneto in Point Piper, an eastern suburb of Sydney, by LJ Hooker agent Bill Malouf, set a record for the country.
“I don’t think things will decline further, but I don’t think they’ll suddenly get better,” Jacobs said. “The market will become more firm, but the change will be gradual.”
Reserve Bank of Australia Governor Glenn Stevens raised interest rates seven times since October last year, citing a surge in home prices among reasons for the increases. Economists expect the central bank to raise rates by another three quarters of a percentage point by the end of next year, according to the median forecast of economists surveyed by Bloomberg.
–Editors: Malcolm Scott, Andreea Papuc
To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net
To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net