Australia’s housing auctions find no takers


Jul 19, 2018-

It’s a winter weekend in Sydney’s bustling northern suburb of Chatswood and a three-bedroom family house sporting an endless garden is up for auction. It’s priced to sell at A$1.88 million ($1.4 million) but no buyers bite and the sale is abandoned.

On the same day, in the heart of the harbour-hugging city a two-bedroom apartment with panoramic views fails to sell as no bidders turn up.

Auctions are a bellwether of demand in property-obsessed Australia, where attending sales is almost a national pastime. It is therefore telling that only just over half were successful the weekend last month a Reuters reporter visited some of Sydney’s auctions, compared to more than two-thirds for all of last year.

And while that week was the worst since 2012, it wasn’t a one off. Auction clearance rates have averaged in the mid-to-low 50 percent range for each of the past nine weeks.

The recent weakness in the Australian housing market, which has been one of the drivers of an economy that has now grown for 27 years without a downturn, has some economists warning of heightened risks of a recession and even a financial crisis.

In anticipation, some hedge funds are shorting the nation’s financial assets and some significant investors are heavily underweight Australia compared to regional benchmarks.

The slack has been partly engineered by the authorities. Curbs on lending to foreigners, foreign buyer taxes and a clampdown on capital flows by Beijing have hurt bubbling demand from Chinese investors, who have been important contributors to the housing boom of recent years.

There are signs of a similar fall in Chinese investment in Vancouver, Canada—which has also been a red hot market in recent years and where the authorities have also intervened by raising taxes on foreign buyers. But a decline in Vancouver’s sales is yet to translate into price declines.

In Australia, a government-mandated inquiry into the nation’s banks has turned up so many misdeeds that the industry has restrained some lending. Annual growth in housing credit has braked to four-year lows while building approvals have come off a peak and nationwide home prices have started to fall for the first time in six years.

Home values in Sydney, the country’s largest city, are down 4.4 percent compared to June last year, the sharpest fall since 2008 and far away from the 19 percent growth enjoyed early in 2017, according to property consultant CoreLogic.

The annual price increases in Melbourne and Brisbane have braked to around 1 percent, down from double-digit growth last year. Investors are taking note.

“We have shifted a greater proportion of our assets offshore as an intensifying slowdown in housing is likely to increase downward pressure on the Australian dollar,” said Ben McGarry, Sydney-based portfolio manager at A$185 million hedge fund Totus Capital.

He said the fund is “short a selection of Australian retail, construction materials and banking stocks which have benefited from the long bull market in Australian housing,” but declined to identify specific companies.

And a unit of UK fund management group Aviva Investors has taken short bets against Australian assets in the credit and currency markets as the odds of a housing-related downturn have increased, a spokesman for the firm told Reuters on Monday. He also wouldn’t detail the bets.

The Australian dollar has fallen more than 5 percent against the US dollar since the beginning of the year.

And there is growing short interest in companies such as building products maker CSR and mortgage insurer Genworth.

Some funds whose policy is to refrain from taking short positions have still reduced their exposure to Australia.

London-based Liontrust Asia Income Fund has 7.5 percent in Australia, against a benchmark of more than 17 percent based on the MSCI Asia-Pacific Ex-Japan index, according to fund manager Mark Williams.

Published: 19-07-2018 08:10

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