Real Estate Blog

Why Have Sydney’s Auction Clearance Rates Been Falling?

Auction clearance levels in Sydney are the lowest that they’ve been in years. The clearance rates in 2015 fell to 73% and many people called it a drop in the property prices for Sydney. This was contrasted by a preceding decade of growth recorded by the Australia price index.

In 2017 the rates for Sydney’s auctions started to reach 50-60% and if auction clearance rates reached 70%,it was a blessing. For the duration of most preceding years, the auction rates reached were more than 70% but in 2017, these average levels fell by nearly 10-20%.

There must be a few reasons for this, lets, find out what they are.

Policies Implemented by APRA

The Australian Prudential Regulation Authority (APRA) is an organization responsible for overseeing the mortgage industry in Australia. This means all its policies have a direct impact on Australia’s property market.

Focus Away from Investors in 2015

The 2015 fall in auction clearance rates was tied in with APRA’s policies. Investors were given more loans in preceding years by lenders. It was these investors that APRA sought to curb. Lenders were told by APRA divert their efforts to residential borrowers.

The implementation of the policy meant that investors looked away from Sydney as a lucrative investment market. It became increasingly difficult for investors to secure financing to purchase properties in 2015. This lead to a decline in Sydney’s auction clearance rates throughout the year.

APRA wanted to deal with increased housing prices with the policy but that did not happen as Sydney’s housing prices continued to increase throughout 2015.

Restricting Interest Only Loans in 2017

In 2017, APRA’s policies were different and seemed to counter interest only loans. Investors looking to invest through, and other auction sites, prefer these kinds of loans. That’s because they offer tax deductions and considerably lower monthly costs.

APRA restricted loan applications of this kind to just 30%. This again meant investors were discouraged to attend auctions, because of lack of financing options.

Both of these policies by APRA caused a restriction for investors to get financing for properties. They ended up missing out auctions and that resulted in the lower auction clearance rates after each policy was implemented. But that wasn’t the only reason.

First Time Buyers

APRA’s policies should have made it easy for first time home buyers as the FHOG (First Home Owner’s Grant) provides much needed financial assistance to buyers and stamp duty exemptions would have provided even more support.

But the increasing trend of housing prices from 2011 to 2016 (almost 70%), has affected first time home buyers more and APRA’s policies have provided little help. The national average of housing prices was around $680,000. Sydney’s most affordable houses are more than this national average.

The average housing price for the region stands at over $1 million. This is too much for a first-time buyer to begin with. The increases in housing prices are slowing down in recent times but the damage has occurred in the past three years.

The buyers have to save more to afford down payments, and this is not good considering that they are the supposed replacements for the investors that have taken their money elsewhere.

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