An eerie silence has fallen across normally crowded Sydney auctions as home buyers and investors pull back from sales fearing Budget tax reforms will push down home prices.
New figures have revealed auction clearance rates over successive weeks have slumped to staggering lows, with just 31.1 per cent of auctions last week actually producing a sale – the lowest success rate recorded since the early days of the Covid pandemic in 2020.
About 37 per cent of auctions the week prior were successful – a sharp contrast to last year when more than 65 per cent of auctions produced a sale over most weeks.
And while figures have yet to be released for this week’s auctions, early indications were that weak sales conditions continued, with many homes passing in without a single bid.
An auction of a home in Maroubra that passed in on Saturday, pictured Luke Evans from Cooley auctions. Picture: Monique Harmer
Agents noted there has been a particularly sharp drop off in demand from investors owing to capital gains tax changes and restrictions on negative gearing announced in the Budget.
There are fears the steep decline in new investment activity could strangle new rental supply, driving up rents.
Experts said the tax reforms were speeding up a decline in the market that had started with the Iran War and three successive interest rate hikes.
These forces together had given rise to a fear of overpaying among home buyers, which has also contributed to the softer auction market conditions.
“House hunters aren’t affected by the (tax) changes but they’re scared that whatever price they pay today will be higher than in a few months time,” said auctioneer Michael Garofolo.
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Sydney auctions have seen buyers hesitant, fearing Budget tax reforms will push down home prices. Picture: Gaye Gerard / NewsWire
The director of auction house Cooley said uncertainty over how the changes would affect the market was encouraging some would-be purchasers to delay their plans.
“It’s hard to make a big life decision like buying a home when there’s this level of uncertainty,” Mr Garofolo said.
SQM Research revealed last week’s NSW auction clearance rate was 31.1 per cent. A total 881 auctions were scheduled that week, with 149 properties sold prior to auction, 144 auctions were rescheduled and 399 of the homes were readvertised as private treaty sales.
SQM Research director Louis Christopher said the Budget tax changes accelerated a fall in demand that was already occurring.
“One hundred per cent the market’s been impacted by the property taxation changes,” Mr Christopher said. “It would predominantly be investors who have stepped back on the sidelines.”
He added that the tax reforms have affected the home buying market too. “Who wants to buy when the market is falling sharply?” he said.
A house in North Bondi that passed in last weekend, pictured Auctioneer Clarence White of Menck White Auctioneers. Picture: Sam Ruttyn
REA Group economist Anne Flaherty said while it is still too early to fully assess how the budget changes will affect demand, auction clearance rates suggest buyer sentiment is softening.
“Interpreting the full impact of these changes will need to be considered against a backdrop of already slowing market conditions,” she said.
“Auction clearance rates have been trending lower since February, largely due to higher interest rates.”
Ms Flaherty said home prices declined across Sydney in April.
“The budget measures are expected to reduce investor activity, which in turn is likely to weaken overall demand and create less competitive conditions for buyers,” she said.
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Anne Flaherty
“While home prices could soften further in Sydney, renters are expected to see rent prices rise. “Over time, a slowdown in investor demand is likely to lead to reduced rental supply, which is unlikely to keep up with population growth.”
Right Property Group director Victor Kumar said “panic” over tax changes was clouding the judgment of investors, causing many to pull back from the market.
“People making this knee-jerk reaction is crazy,” he said, adding that renters would pay the price for this trend over time. “If investors pull back nationally, which they are already doing, rents will rise significantly – it’s that simple.”
Mr Christopher forecast that sales volumes would decline 30 per cent this quarter.
“I think what we’re going to see is a very, very tough period, especially for real estate agents,” he said.
“One thing that hasn’t been discussed in all this is how this actually flows through to state government revenues because the bulk of state government revenues are based on property stamp duty transfers.
Auctions are seeing the six-year low clearance rate as house prices also see a decline. Picture: Monique Harmer
“If you see a 30 per cent decline in (sales) volume, which I think we will, that’s going to amount to a huge percentage decline in state government revenues.”
SQM Research forecast in March after the war in Iran began that Sydney house prices would fall up to 6 per cent this calendar year, but Mr Christopher said he now expects the falls to be greater because of the tax reforms.
“These current auction clearance rates essentially would equate, if they were to continue, to somewhere between nine to 12 per cent of housing price falls in Sydney,” he said.
Mr Christopher explained that a steep rise in the number of vendors accepting pre-auction deals exposed the weakness in the market.
“We don’t normally see that until we hit a downturn period,” Mr Christopher said.
“It happens precisely because vendors have been informed that they only have one registered bidder at auction, they’re best off to negotiate before they hit the auction.”
– With additional reporting by Aidan Devine
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