buyers pull in their horns

Bullish run ends as buyers pull in their horns
Jonathan Chancellor
April 18, 2011

There is a new norm of buyer frugality enveloping the property market as Sydney's residential property players and posers temporarily lose their passion.

Dramatic price growth, speculation and wild expectations have waned, replaced by subdued prices, caution and realism.

Just getting reasonable traffic at properties that are open for inspection has become a hurdle for some listings.
Advertisement: Story continues below

Media headlines, derived from market data and commentary, have turned decidedly bearish, some portraying the property market as an emerging investment black hole.

However, the 55 per cent clearance rate from the 600-plus pre-Easter auctions on Saturday indicates an undercurrent of strength.

This year's cumulative clearance rate hovers at 56 per cent compared with 69 per cent for the same period last year. During early 2008 - in the midst of the global financial crisis - the clearance rate dipped to 52 per cent, according to Australian Property Monitors.

The chief executive of the LJ Hooker group, Janusz Hooker, suggested recently that people have formed the view that capital appreciation was not going to be anything like it has been in the past few years.

How to avoid property values going backwards is a topic exercising many minds at the moment.

At Bronte, there was a vendor's bid of $860,000 for a two-bedroom semi-detached cottage at its weekend auction. It last sold in 2009 for $850,000.

At Randwick, vendors accepted $1.75 million for a three-bedroom semi that cost $1.71 million in 2007 - not enough to recoup the $79,000 stamp duty they paid.

A two-bedroom Mosman apartment was passed in on a $1.29 million vendor's bid, having sold in 2003 for $1.45 million.

Last month a house at Bayview, on the northern beaches, fetched $3.15 million, after selling in 2008 for $3.5 million.

''Agents can't be the gatekeeper of prices anymore,'' one agent said.

The late Easter this year allowed the market to gather negative momentum on its larger-than-usual volumes.

Some segments of the market are clearly at a more fragile point.

Buyers are making a decision to purchase, but only if vendors realise the new norm is prices that mostly mirror those of the past few years.

It was a scenario that did not suit the 2DayFM radio announcer Jackie O and her husband Lee Henderson, who have opted to lease their 1890s Paddington house after buyer interest fell short of their $3 million expectations.

The couple had renovated the terrace after buying it for $2.75 million from the producer of the movie Shine, Jane Scott, in 2009.

While many have the luxury of simply withdrawing from the market, some vendors in obvious financial distress face tough negotiations with savvy buyers.

Rumours abound that there are many prestige properties for sale on estate agents' books, but without any public marketing.

Dramatic price capitulations are increasing, but the number is still low. It is possible the forthcoming winter hibernation might make such low prices less contagious.

Perhaps sensing the shift to a less active market, industry groups are reigniting campaigns to lower taxes with the aim of making it cheaper to purchase property.

Property-related taxes are, by far, the largest source of tax revenue for the state and local governments.

The recent buoyant housing market conditions meant property-related tax income rose to new highs across Australia, according to RP Data research.

During the 2009-10 financial year, state and local governments raked in almost $32 billion in such taxes.

Stamp duties on conveyances were the largest single contributor to revenue at $12 billion, followed by municipal rates at $11.6 billion.

Property taxes accounted for 48 per cent of total tax revenue during 2009-10 for state and local governments, followed by payroll taxes at 25 per cent of revenue.

Government revenues can fluctuate dramatically, reflecting market changes, but the trend is still upwards since total revenues were $18 billion nine years ago.

The total value of residential property transactions during 2009-10 was more than $247 billion.

During the last financial year, revenue on stamp duties on conveyances increased 29 per cent and municipal rates 6.5 per cent.

''But as a result of the current soft conditions we expect that state and local governments will experience a budgetary hole at the end of this financial year due to fewer transactions,'' the RP Data researcher Tim Lawless said.

Only the most pessimistic commentator would suggest, however, that the addiction to property won't return at some point; while perhaps not to the city's bingeing best, the daily demands of demographic change will reignite affordable markets.

It appears much of the recent downturn is the result of a voluntary spooking. Looming large is the fear of further interest rate rises and the save-for-a-rainy-day sentiment that has understandably followed Australia's escape from the worst of the global financial crisis.

Even the internationally renowned property basket case - Ireland - might have perhaps turned the corner. All but two of the 82 properties offered for ''distress sale'' sold on Friday, raking in ?14 million ($19 million) for six receivers.

Commentators said the room was packed with investors with "mattress money".

The prices were bargains - some at a third of their peak - but the agents Allsop and Space had expected to make only ?10 million.

By contrast, a bumper property auction last April resulted in only six of the 70 properties being sold under the hammer.

Ireland's ghost estates and high emigration levels were evocatively reported by Emma Alberici on a recent ABC Foreign Correspondent program recently.

The homes in Dublin, Wicklow and Galway included a three-bedroom semi, which sold for ?30,000 - ?7500 over its guide price. The dearest was ?560,000 - more than double its price guide - for a block of six units and three commercial spaces.

The Irish property boom ran from 2000 to 2006, sparked largely by intense speculative construction, rapidly rising prices and bank lending policies of unprecedented generosity.

In 2007 prices stabilised and the bubble burst in 2008. By 2010, house prices had fallen up to 50 per cent, with the number of housing loans down 73 per cent.

Australians were among those bidding at Friday's auction in Ireland. About 20 per cent of the auction buyers were from overseas, but apparently no Australians were successful bidders.

Read more: http://www.smh.com.au/business/property/bullish-run-ends-as-buyers-pull-in-their-horns-20110417-1djpm.html#ixzz1JwJ9zXjM