With the Australian housing market experiencing a price correction, driven by Sydney and Melbourne, the ABC has published an interesting report on the paralysis impacting buyers arising from the federal government’s changes to negative gearing and capital gains tax (CGT).
The ABC notes that the auction clearance rate across the combined capital cities collapsed to 43.1% on the first weekend after the May federal budget and has not recovered.
The report notes that capital‑city sales volumes fell 17% year‑on‑year, with open‑home attendance down, bidding thin, and buyers taking longer to commit.
Source: Cotality
The ABC cites a three‑factor shock hitting demand simultaneously, namely:
- Three consecutive RBA rate hikes have increased mortgage costs and lowered borrowing capacity.
- The CGT and negative‑gearing reforms, which Westpac forecasts will reduce investor activity by 34%.
- Economic and geopolitical uncertainty is prompting buyers to wait for “the dust to settle”.
As a result, the market stalled in May, with analysts expecting a 20% fall in transaction volumes, falling prices, and a shift from a seller’s market to a cautious, buyer‑driven market.
Loan Market data show that investor mortgage applications are down 23%, while first-home buyer applications are down 12%.
Ray White chief economist Nerida Conisbee told the ABC that the real estate market has seized up, as existing sellers have faced a buyer’s strike.
“Buyer demand has weakened materially compared with this time last year”, Conisbee said.
“The market has shifted from urgency to caution”.
“Buyers are taking longer, there are few active bidders, open-home attendance has softened and some purchasers are clearly waiting to see what happens with rates, the budget changes and broader economic conditions”.
“The budget has now added a second shock of stage fright by creating uncertainty over tax treatment and future returns”, she said
Rebecca Cuderman, principal of NGU Real Estate’s Logan office, added that “buyers are pulling back, slower to make decisions and more price-sensitive than they were a few weeks ago”.
New Zealand and Canada have experienced deep house price corrections that have extended over several years.
It will be interesting to see whether Australia follows a similar path.
