Where auction clearance rates are holding up despite investor ‘wipe out’

Property experts say investors have largely abandoned the residential auction market, though buyers in some pockets continue to face stiff competition.

Auction clearance rates have fallen sharply in the weeks since the federal budget was handed down as buyers ponder sweeping changes to negative gearing and the capital gains tax discount.

The measures officially passed federal parliament on Thursday, but even before the package became law, those on the ground say the impact has been stark.

Jump ahead to see where auction clearance rates are holding up.

Buyer’s agent and president of the Property Investment Professionals of Australia (PIPA), Cate Bakos likened sentiment to the initial impact of Covid. 

“It’s really been quite a market rattle,” she said.

“It's a more depressed market since the budget announcement, and I put that down to not only investors pretty much being wiped out of established properties, but also owner occupiers have been quite nervous about the implication of the budget on the market conditions.

“Nobody wants to feel like they're buying in a market that's falling, so we've seen a lot of owner occupiers sitting on their hands.”

Since the budget was handed down in May, PropTrack data shows auction clearance rates have hovered around 50% on average across Melbourne, and 40% in Sydney – the lowest levels since Covid lockdowns.

But there are still pockets where most homes that go to auction are selling under the hammer.

A clearance rate of about 60% is generally considered to be a balanced market, while a clearance rate of 70% and above tends to signal steady or strong price growth.

Analysis of the suburbs with the highest clearance rates over the four weeks to 21 June shows several suburbs in Melbourne’s affordable outer ring are consistently selling under auction conditions.

Top 10 suburbs by auction clearance rates across the country:

Lalor and Mill Park in the city’s north have cleared about 70% of homes at auction over the past month, along with Cheltenham in the south.

Ms Bakos said many of the Melbourne suburbs to appear in the list were family-friendly areas where bidders were often owner occupiers rather than investors.

“They’re attracting local buyers, not in just investors,” she said.

“They've got a lot of houses, as opposed to high-density units, and you're seeing a lot of upgraders and first-home buyers who want a house targeting these areas.”

Most homes in Melbourne's Lalor are selling at auction, a suburb popular with owner occupiers wanting an affordable freestanding home within easy commute of the city. Picture: realestate.com.au

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She said Lalor – which was one of the suburbs nominated in this year’s realestate.com.au Hot 100 list – is one of the few remaining areas offering relatively affordable freestanding homes on a decent block within easy reach of the city.  

“I've placed a lot of investors in Lalor because I believe in its growth long term. It's on a train line corridor, it's established, it's been around since the 60s, 70s, and it has a really good range of local shops,” she said.

While the number of suburbs with auction clearance rates above 60% has fallen sharply in recent weeks, Mill Park, Thomastown, and Keyborough have remained among the top ten suburbs since April.  

“[The Melbourne auction market] is still segmented. Some auctions are going well, we've missed out on the last two that we've gone for,” Ms Bakos said.

“First-home buyers are enjoying being active, and a lot of auctions have been changed to private sales.”

Sydney's Surry Hills is clearing most homes at auction, though agents say the sub-$1.5m price range is most active. Picture: realestate.com.au

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Sydney has been far less consistent in terms of the suburbs consistently holding above 60%, but BresicWhitney chief executive Will Gosse said popular inner-city suburbs are delivering for sellers that are prepared to meet buyer expectations.

"There are fewer buyers in the market, but the ones engaging are serious," Mr Gosse said.

"What's holding the Surry Hills and Redfern numbers up is availability of stock in these A-Grade locales at a particular price point."

He said the sub-$1.5m price point was particularly active, with buyers that previously felt priced out returning to the table.

"Some had stretched their searches into further flung markets a few months ago, and the recent shift has brought them back into consideration. That kind of buyer is motivated, well prepared, and decisive when the right home appears."

Affluent suburbs like Paddington and Woollahra are facing a different challenge, he said, with fewer entry level options under that same threshold "and a stock profile more exposed to the slowdown at the top of the market."

Buyer momentum stalls elsewhere as budget hits confidence

The budget measures aim to reduce competition for first-home buyers by disincentivising investors from purchasing an established property, and instead directing them towards new homes with tax carve outs on newly built properties.

But in expensive markets like Sydney, the broad market pullback is making even first-home buyers nervous, according to buyer’s agent Veronica Morgan.

“Let's face it, first-home buyers, particularly if they're using the 5% Deposit Scheme, they're not going to rush in to buy in a falling market because it doesn't take long for them to be negative equity when they've only got 5% equity to start with,” Ms Morgan said.

Sydney buyer's agent Veronica Morgan says many buyers are sitting on their hands post-budget. Picture: Justin Lloyd.

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National home prices remained flat in May, with falls in Sydney, Melbourne, Canberra and Perth offset by gains in other capital cities.

The latest realestate.com.au Market Outlook predicts price falls of 3% in Sydney over 2026, and declines of 4% in Melbourne. All other capital cities are projected to see continued price growth in the year ahead.

Ms Morgan said in Sydney, buyers are sitting on their hands.

“There's been a number of headwinds, consumer confidence was rocked earlier in the year with interest rate rises and the Iran war.

“But the budget really has been the big kicker, the nail in the coffin, and this won't last forever, these downturns never do, but it's the catalyst that really just made everyone stop.”

She said “aspirational” suburbs were likely to benefit from the pullback as buyers who had been prepared to compromise on location take the opportunity to get into their desired neighbourhood.

“I've watched this happen for last 26 years I've been in real estate, buyers who previously might have looked at secondary suburbs because they were priced out of that suburb, they will turn their attention to those more desirable suburbs, because now the perception is they can afford to get in there,” she said.

“So the bridesmaid suburbs, they will suffer a bit.”

Mr Gosse said investors were still weighing up what the next few years look like given negative gearing is now off the table for most properties.

"It's compounded the challenges we began to see from March. People are thinking harder, taking longer," he said.

"For owner occupiers, the motivation to be in the right home, in the right suburb, isn't as acutely tied to a budget announcement as it is for investors."

Renters to lose out from ‘insane’ budget deal

The government’s housing package officially passed through parliament on Thursday after Labor struck a deal with the Greens.

As part of the deal, investors will be banned from borrowing to purchase residential property through a self-managed super fund – a move Ms Bakos described as “insane”.

“That's a very regulated space where the lending is considered safer, it's a less risky lending model, it's a far more conservative investment model, and we're removing those investors from the list as well,” she said.

Buyer’s advocate Cate Bakos said investors have been effectively "wiped out" of established middle-ring suburbs, with renters to pay the price. Picture: Supplied

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The result of the budget package will be fewer investors purchasing in established, middle-ring suburbs where most renters want to live, she said.

“The challenge for these tenants, who might have been renting five or 10 years in these areas, and that's not uncommon, is when their investor sells, another investor will not replace them because there's no negative gearing benefit.

“They're going to be displaced, there's no doubt about it, and for the ones that can afford to stay, the rents are going to go through the roof.”

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Ms Morgan said while not every investor requires negative gearing to afford the cashflow shortfall that often comes with investing in residential property – it’s those already in the market who are set to benefit from the budget changes.

“This is an equalising budget? What a mockery that is. Those who are already in the market benefit from this because there's less competition, and they still get the opportunity to negatively gear.”