A year ago, when Sydney property
agent Peter Green’s clients decided to sell, half opted for
auctions betting competition among buyers would deliver them the
best price. Today, less than one in five take that chance.
“The vendors don’t want to embark on the potential of
failure,” said Green, 55, principal at property broker
Laing+Simmons in Miranda, a suburb 25 kilometers (16 miles)
south of Sydney’s center. “In the last three months, the number
of people visiting open houses has been cut by half. And buyers
may show up to auctions, but they don’t bid.”
Homes sold via auctions in Sydney, Australia’s most
populous city, fell to 12.8 percent of total sales in the three
months ended November, from a peak of 15.7 percent in the
quarter to Nov. 30, 2010, according to real estate researcher
Australian Property Monitors. Half of the homes that went to
auction in December failed to sell, APM said.
Unlike the U.S., where auctions are used to sell distressed
properties such as those in foreclosure, their use in Australia
is a barometer of the market’s strength, with newspapers
devoting sections to sale results. The declining use of auctions
after home prices fell the most in at least 12 years in 2011 may
foreshadow another year of prices going down.
“People’s preference for moving away from the auction
format is reflecting demand on the ground,” said Ben Jarman, a
Sydney-based economist at JPMorgan Chase Co., who expects
prices will fall another 3 percent this year as concerns about
the global economy outweigh interest-rate cuts by the central
bank. “We’ll see some demand resume, but supply will come on
line as well.”
The number of homes listed online for sale across Australia
jumped 18 percent in December from a year earlier to 385,036,
according to Sydney-based SQM Research.
Declines Overdue?
Stockland (SGP), Australia’s biggest listed home builder, slipped
11 percent in Sydney trading last year and remains 62 percent
below a 2007 high, while Australand Property Group (ALZ), a unit of
Singapore’s CapitaLand Ltd., tumbled 18 percent in 2011 and is
73 percent below its 2007 peak. Both Sydney-based companies are
among developers selling smaller homes and plots to preserve
margins as the housing market falters.
The six-member SP/ASX 200 Banks index lost seven percent
in 2011 as mortgage lending growth weakened to the slowest pace
since World War II. Still, loan delinquencies declined to 1.42
percent in September, according to a report from Fitch Ratings
last month. That compares to 8.15 percent in the U.S. in
November, according to Lending Processing Services.
Australia escaped the housing rout seen in the U.S. and
U.K., in part due to government measures to boost demand in the
wake of the collapse of Lehman Brothers Holdings Inc. Housing
prices in the nation’s eight state and territory capital cities
surged 11.1 percent in 2009 and 4.7 percent in 2010, according
to figures from RP Data. They fell 3.7 percent in the first 11
months of 2011, set for the biggest drop since Brisbane-based RP
Data began compiling the figures in 1999.
Debt Triples
About 70 percent of Australians own their homes, compared
with 66.3 percent in the U.S., according to census data. The
quest to own rather than rent has contributed to surging
household debt, which, as a proportion of disposable income,
tripled over the past 20 years to 150.8 percent in the quarter
ended Sept. 30, according to central bank data. That compares
with 133 percent in the U.S. at the height of the subprime-
mortgage boom.
The median price for houses and apartments across all
regions in Australia was A$315,000 ($327,000) as of Nov. 30,
according to RP Data. That compares with $147,800 in the U.S.,
Zillow.com figures show.
“Australians’ love of property has made auctions popular
here,” said Amanda Lynch, chief executive officer at the Real
Estate Institute of Australia. “Auctions are a spectator sport
as well as a way to buy, and they can create an atmosphere where
there’s some momentum in a hot market.”
Auction Results
The Sunday editions of the Sydney Morning Herald,
Melbourne’s Age, and the Brisbane Times have a section with
addresses of properties listed for auction the previous day,
results and prices achieved of those successfully sold.
The typical home auction in Australia follows six-to-eight
weeks of advertising and “open house” displays, where
potential buyers are able to view the property and its building
plans. On the day of sale, often in a front-yard for homes or an
offsite location for apartments, interested buyers must register
with the selling agent if they plan to bid.
When the auction starts, bidders nominate prices or signal
acceptance of levels dictated by the auctioneer. Once the
seller’s pre-determined minimum level has been passed, the
property will be sold to the highest bidder after final checks
with the owner and a “going once, going twice, sold” cry and
gavel blow from the auctioneer which marks a binding contract.
Home Ownership
The Block — one of Australia’s top-rated television shows
— highlighted the housing market’s malaise in 2011. The series
followed four couples as they renovated homes to attract the
highest price at auction over set targets. More than 3 million
watched the finale on Aug. 21 as just one of the four homes
sold, for A$855,000, versus its A$840,000 asking price.
“Auctions are designed to take advantage of competition
amongst buyers,” Andrew Wilson, Sydney-based senior economist
at APM, said. “When there are competing buyers, auctions
maximize the market value of a property, but when there’s not a
lot of competition, it’s the buyers who hold the whip hand.”
The rate of successful home auctions in Sydney slumped to
49.4 percent in December, the lowest since January 2011, as
purchasers at the middle and top ends of the market stayed on
the sidelines, according to APM. The rate dropped from a 2011
high of 58.8 percent and a six-year peak of 71 percent in
February 2010.
Turning Cautious
In Melbourne, about 12.2 percent of properties, or 8,396
homes, sold in the three months to Nov. 30 were by auction,
compared with a high of 19.6 percent in the November quarter of
2010. Auctions in Sydney dropped to 7,956, from an 8,754 peak.
Those numbers exclude canceled auctions and those that fail to
meet the seller’s reserve price and are then sold privately,
APM’s Wilson said.
Laing+Simmons’ Green, who opened his office with his wife
nine years ago, sold 48 homes priced between A$330,000 and A$1.2
million in 2011, he said. More clients opted to set a listing
price rather than risk an auction as the market deteriorated,
Green said, with only about a quarter of his successful sales
resulting from auctions.
Even when a property goes to auction, fewer buyers are
bidding, and they’re more conservative in the prices they’re
willing to pay, said Matt Lahood, general manager for sales at
Sydney-based real estate broker McGrath.
Expectations Fade
“Bidding at auction hasn’t been as bullish as last year,”
Lahood said in a telephone interview. “Owners are getting
roughly close to their prices now, whereas, a year or two ago,
we might have seen people going way above the expectations of
owners.”
McGrath, which only operates in New South Wales and
Queensland states, had a 60 percent sale rate at its auctions in
the December quarter, Lahood said.
The Reserve Bank of Australia reduced the benchmark rate by
a quarter percentage point on Nov. 1 and again on Dec. 6 as
inflation pressures eased and global risks increased. It said
Dec. 20 that conditions in the housing market are “subdued.”
Traders are betting on another 25 basis-point cut next
month. UBS AG Sydney-based bank analysts Jonathan Mott, Chris
Williams and Adam Lee wrote in a Jan. 13 report that they don’t
expect the rate cuts to boost the housing market as “over-
leveraged borrowers” leave repayments unchanged.
“The big thing for the property market, consumer
confidence, isn’t there yet,” said Angus Raine, chief executive
officer of Sydney-based real estate broker Raine Horne, who
expects sellers to avoid auctions again in 2012. “That’s the
key missing piece of the property puzzle.”
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