Prestige property values tipped to fall as spring selling season gets off to sluggish start

Prestige property values will fall during the spring selling season, especially in overheated markets such as Melbourne, with a flood of listings and fewer buyers causing sellers to discount heavily, one expert warns.

The prediction comes as real estate experts are carefully watching the market’s performance over the next few months, with sales during the spring selling season set to determine the likely pace of activity over the next year.

M3 Property national research director Frank Sorgiovanni believes the Melbourne prestige market will experience some deflation as it backs down from an overheated year, when prices grew by about 25%.

“Analysis confirms the prestige market, which historically is not typically sensitive to interest rate rises, is showing signs of slowing, particularly in suburbs Bright, Armadale and Camberwell.”

“Arguably, investors also represent a significant risk to house prices if they become widespread sellers should rents and values begin to stagnate or fall. There is evidence of this now occurring.”

Sorgiovanni believes clearance rates will drop slightly as bidders back away due to uncertainty over both the domestic economy and troubles overseas.

“The global economy is still suffering from the effects of the GFC and now a weaker than expected Australian economy in 2011 and potentially inflation-driven increasing interest rates may limit prestige house price growth.”

“With spring selling season around the corner, the evidence suggests this year may not see a high level of sales activity, just a higher number of listings.”

These comments come after recent figures from RP Data revealed the most expensive 20% of properties recorded the biggest price falls in the quarter to July 31.

Real Estate Industry of Australia president David Airey also says buyer uncertainty will plague the market, with many nervous about the current political situation in Canberra and how that will unfold.

“The feedback we’re getting from agents is that the government situation is making a difference. People are concerned about making decisions because of effects on interest rates. They just don’t know what’s going to happen.”

Airey says the performance over the next few months will determine how the next 12 perform, with a strong spring season likely to usher in a relatively positive, albeit subdued, year for the market with price growth of between 5-8%.

“I think the performance will be a big sign of what lies ahead. Of course with the first week of spring there have been some indicators of slow activity, but bad weather may have been a factor.”

“The football in Melbourne often makes a difference. It sounds like we’re making excuses here, but we never expected there to be a big bounce in sales. The average is two out of three, and that sale rate is continuing.”

But Australian Property Monitors general manager Anthony Ishac says price behaviour depends entirely on location. While there may be some falls in certain areas, he believes the overall market will see prices remain flat as listings increase and buyers back away.

“We’re tracking the market every single day. This particular spring, there are a really high level of properties on the market. I think we’re going to see auction clearance rates steady, but I don’t expect prices to either slump or boom.”

“We aren’t going to see strong price growth, and relatively high clearance rates. The outlook is going to be much more stable than that.”

Ishac says much of the activity will depend on interest rates. But with no activity predicted until early next year, he believes the spring selling season will see activity remain in “business as usual” mode.

“And even if there was going to be an interest rate rise, those things take a bit of time to filter through. Conditions will remain solid over the next three months, and that will lead into next year and impact on performance after that.”

Auction rates in Melbourne remained on par with the last few weeks, although rain may have dampened some buyer activity. Real Estate Industry of Victoria chief executive Enzo Raimondo said in a statement the first week of the season serves as a good indicator for the rest of the year.

“If the first few weeks of spring sets the tone for the rest of the year then this spring will be one when buyers have good opportunities and vendors achieve healthy results. This is sort of balanced residential auction market Melbourne has not witnessed for a few years.”

According to the REIV, the city recorded a clearance rate of 72%, with 603 properties on the market. Total sales came to $384.27 million.

In Sydney, 63% of the 226 properties on the market were sold, with total sales reaching $106 million. Only four properties out of six sold in Brisbane with sales at $1.4 million, while 17 sold in Adelaide, out of 23, with sales at $12 million.