Sydney home bubble deflates on loans cut


SYDNEY • Australia’s east-coast property bubble is showing signs of deflating at a faster clip as home-lending data recorded the longest losing streak in almost a decade.

Housing finance fell 1.4% in April, the fifth straight monthly drop and the longest stretch of declines since September 2008, when Lehman Brothers Inc collapsed and a month before the Reserve Bank of Australia slashed its key interest rate by a percentage point.

The downturn is most prominent in Sydney where prices slid 4.2% in May from a year earlier, when they were rising at an annual pace of 17%. Sales at auctions — a popular way of marketing houses Down Under — have slumped to the lowest since early 2016 in Australia’s biggest city, with only around half of properties successfully selling.

A key factor weighing on Sydney’s market is tighter credit, as regulators force banks to cut back on the riskiest mortgages. Fewer interest-only loans — which are cheaper in the early years because borrowers don’t repay principal — means Sydney prices are now out of reach for many investors.

Chinese buyers, a previous driver of demand, have also receded due to difficulties in moving cash from the mainland.

For Australian borrowers, there’s little prospect of relief for household income as wage growth has stagnated for the past five years. The economy’s private debt-to-income ratio is also at a record 189%, leaving little scope to increase leverage anyway.

Meanwhile, high-income owner occupiers have less borrowing power due to tighter checks on their real spending levels as part of the mortgage approval process. Previously they could rely on benchmarks that were unrealistically low.

Market bulls point to Australia’s population growth and record-low interest rates — unchanged at 1.5% for almost two years — as reasons to expect a soft landing in the property market. Others suggest the current downturn is only just getting started, noting the decline after 2003 lasted for more than two years.

For the central bank, a gradual grind down in prices would be helpful in bolstering financial stability, particularly if it doesn’t hit households’ perception of their wealth too hard.

Meanwhile in the UK, the slowdown in the capital’s housing market is starting to hit the bottom line for homebuilders.

Pretax profit at Crest Nicholson Holdings plc fell in the first half and the company said it will exit central London over the next 18 months amid a “challenged” market for homes valued at more than £1 million (RM5.3 million). Pricing is flat across the group and construction costs are rising, affecting margins, CEO Patrick Bergin said in a statement yesterday.

London’s housing market is in flux, with prices falling even as the government’s interest-free loan programme boosts demand for homes below £600,000. Home values in the UK capital fell 2.5% in April from a year earlier, the only region where prices declined, Acadata said.

The number of unsold homes under construction in London rose 19% last year, to the highest since Molior London started compiling the data in 2009. Almost half of the properties are priced between £1,000 and £1,499 a sq ft, the data show. The average London home sells for about half that price per sq ft.