Luxury home auction falls short as rates trim demand

SYDNEY - A luxury home auction at the Sydney Opera House this week managed to sell only two of the 11 Australian homes on offer, as the most aggressive round of interest rate rises saps demand.

The auction, in a housing market the International Monetary Fund said may be overvalued by as much as 15 per cent, raised A$4.11 million ($5.3 million), a fraction of the A$30 million of properties on sale.

They included 10 homes in New South Wales, five of which were in Sydney, and one in Brisbane, and were valued at A$2 million to A$10 million each, according to Ray White, the biggest property broker in Australia and New Zealand.

"House prices have been going sideways since June," said Alan Oster, chief economist at National Australia Bank.

"You've got interest rates that are going up and have further to go, and that's not helping."

The Reserve Bank of Australia raised its benchmark interest rate by a quarter of a percentage point to 4.75 per cent last week, and said it welcomed a cooling of house prices, even as home-price growth slowed for a third straight quarter from July to September.

Auction clearance rates averaged 54.7 per cent across Australia's eight capital cities during the weekend, compared with an average of 63.8 per cent the weekend of May 29, according to data from real estate research group RP Data.

Home values in the top 20 per cent of Australian suburbs by price fell 2 per cent in the three months to July, compared with declines of less than 0.7 per cent for the rest of the market, according to an RP Data-Rismark index.

Last week, "The Reserve Bank seemed to give the indication that they were keen to keep the lid on prices, and that's not what buyers want to hear," said Brian White, chairman of the Ray White Group, which organised the event.

"That's a very bearish sentiment."

With Sydney's median home price at A$506,000 in the three months to September, according to RP Data, even buyers of properties in the low millions could be susceptible to rising interest rates, said White and Oster.

Ray White is in talks with potential buyers and expects to sell three more of the properties in "the next couple of days", White said. He said he had hoped to sell at least five houses during the auction.

More than 100 people turned up to the event, the first Ray White auction to be held at the Opera House, which was marketed both domestically and internationally. About 20 were registered bidders, according to chief auctioneer Sam Kelso.

After a brisk start - with two parties almost doubling the opening price to A$1.56 million for a country home in Mittagong in the Southern Highlands of NSW - the next seven properties either received low offers or none at all. The other successful offer was a A$2.55 million bid for a riverfront development in Birdwood, 400km north of Sydney.

Some properties - including a six-bedroom rural lakefront home with a tennis court, billiards room, pool and sauna in Tuncurry, about 300km north of Sydney, and a three-level home with under-floor heating and a 12-person lift in Blakehurst, a south Sydney suburb - failed to receive any bids.

Others, such as a 2.8ha, five-bedroom estate in Belrose, in Sydney's northern beaches, and the five-bedroom Brisbane penthouse apartment that included full butler's quarters and three outdoor entertaining areas, received bids that didn't meet the owners' expectations.

The only offer for the Belrose property was A$3.4 million, A$500,000 below the owner's price, and the highest bid for the Brisbane apartment was A$3.5 million, missing the seller's A$4.3 million expectation.

The broker expects more interest in the remaining properties in the coming month, White says. The company plans to hold similar auctions each November and March.

More sellers are now putting prime properties up for sale than at the start of the year, according to Ray White.

"With the top end of the market toughening a little bit, we wanted to offer our top-end clients a point of difference," Kelso said.

Luxury properties are taking longer to sell and about 25 per cent fewer homes are changing hands than 18 months ago, though there is still demand, said Bill Malouf, principal at real estate chain LJ Hooker in the eastern Sydney suburb of Double Bay.

An "acute" housing shortage, credit constraints and income growth will keep Australian home prices from falling, said Westpac last month, joining Commonwealth Bank of Australia in rejecting speculation about a bubble.

Preliminary results of a stress test on mortgages by Fitch Ratings found banks could handle an unlikely worst-case loan default scenario.

Bidders based in Singapore, China and Indonesia expressed interest in the properties following Ray White's marketing campaign in Asia, White said.

- BLOOMBERG