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More signs the property markets are cooling

Housing Collapse Risk

Australia’s major property markets are showing further signs of slowing down, with auction clearance rates in Sydney and Melbourne sinking.

Sydney’s auction clearance rate in May was the slowest month since January, consistently below 80%, and just 75.9% on Saturday according to Domain. It seems homeowners are rushing to try and sell their houses while the market was still pumping before it crashes.

A lack of supply, surging migration and a strong Sydney economy are all cited by Domain as factors that should drive the property market positively. Sydney’s jobless rate was just 4.4% according to the Australian Bureau of Statistics (ABS).

Melbourne’s auction market continued to see record numbers of listings each weekend, and it was only a matter of time before auction clearance rates started falling. Last weekend was the year’s lowest auction clearance rate of 76.6%. As for Sydney, sellers have been flooding the market trying to get a good price for their property before conditions deteriorate much further. 1,143 homes were listed for auction over the weekend, well ahead of the 1,067 on the same weekend last year. An estimated 1,050 houses are up for auction this weekend – the first of June.

Victorian government changes to property taxes and stamp duty have seen foreign property buyers discouraged from the market, meaning developers may struggle to get finance for new projects. Moves to encourage first home buyers were unlikely to see them replace foreign buyers, investors and owner-occupiers.

Building approvals for new apartments in Victoria have peaked according to AMP’s chief economist Shane Oliver, which could flow through to other parts of the Victorian economy.

Foreign home buyers have also been hit a new federal government vacancy tax for properties left vacant for six months or more in a year, and tighter restrictions on foreign ownership on new developments. Changes to capital gains tax exemptions, and a higher CGT tax rate for foreigners could also have adverse implications for Australia’s property market.

As we’ve noted before, Australia’s big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have also been hit with the bank levy, which means they need to either increase their revenues, cut costs or both. That could result in higher interest rates and tougher restrictions on property loans.

Foolish takeaway

There’s no getting away from it, Australia’s major property markets are set for a slowdown, although it’s unlikely to be a major crash. That would be too much of a shock to the financial system, and Australia’s regulators aren’t going to want that.

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Motley Fool contributor Mike King has no position in any stocks mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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