Price cuts herald end of Sydney home boom as foreigners retreat

By Narayanan Somasundaram
Updated December 2 2015 - 12:13pm, first published 11:51am
There are bright spots for sellers, such as the bidding frenzy for this residential development in Chatswood, but overall the market seems to be coming off the boil, experts say. Photo: Supplied
There are bright spots for sellers, such as the bidding frenzy for this residential development in Chatswood, but overall the market seems to be coming off the boil, experts say. Photo: Supplied
Price cuts sent Sydney home prices 1.4 per cent lower in November, the most in five years. Photo: Michel Bunn
Price cuts sent Sydney home prices 1.4 per cent lower in November, the most in five years. Photo: Michel Bunn

Chris Carr, a real estate agent in Sydney's northwestern suburbs, has had to convince sellers to drop prices on at least six homes in the past two months to complete transactions.

Such price cuts sent Sydney home prices 1.4 per cent lower in November, the most in five years, as Chinese demand slows, banks raise mortgage rates and buyers balk at record home prices. The first open inspection of a home now attracts on average about six groups of prospective buyers, compared with as many as 30 three months earlier, Carr, an agent with Gilmour & Orley, said in an interview.

"Sellers have had to accept up to 10 per cent price reductions," said Carr, who sells homes in the Hills District about 30 kilometres from the CBD. "There is a lack of international buyers, particularly those with a Chinese background now, who were behind the price rise. Local demand is still there, but they are price-conscious."

The drop in prices is taking some steam out of three years of price gains that have made Sydney one of the least affordable places in the world to buy a home. The city's housing prices have climbed 44 per cent in the past three years, driven by loan rates that are close to five-decade lows and buying by foreigners including those from China.

Falling values

Across the nation's capital cities, values fell 1.5 per cent in November as new regulation forced banks to tighten lending standards and prompted them to raise mortgage rates, property researcher CoreLogic said on Tuesday. Melbourne led price declines, with a 3.5 per cent decrease. The 1.4 per cent slide in Sydney was the biggest drop since December 2010 and the first decline since May.

"Booming house prices growth in Sydney, and to a lesser degree Melbourne recently, will not be repeated next year," said Andrew Wilson, a senior economist at the Fairfax Media-owned real estate website Domain.

Chinese buyers, who underpinned a rally in global property markets from San Francisco to Sydney since 2011, are treading more carefully after the devaluation of the yuan and an economic slowdown at home. Chinese demand for Australian property is waning, Credit Suisse noted early last month, estimating the Asian country's appetite for global property could drop by 30 per cent. In California, international buyers are accounting for the smallest share of home sales in at least eight years as prices climb and investors from China rein in purchases, the state's realtors group said in October.

Auctions slip

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