The Block 2015: Will Melbourne’s plummeting auction clearance rates impact auction day?

Information verified correct on December 5th, 2016

What will record low clearance rates mean for The Block contestants come auction day?

Despite higher volume sales, auction clearance rates in both the Melbourne and Sydney markets continue to plummet, and with evidence to suggest that the Melbourne auction market is cooling- The Block 2015 contestants may face a tough crowd at auction.

According to Australian Property Monitors (APM), Sydney’s auction clearance rate fell to 71.3% this month, which represents the lowest auction clearance rate of the year. In Melbourne, a record low rate of 74.5% suggests that there is weakening buyer sentiment in the market, with several properties being passed in this auction season.

So how could this impact the sales of The Block properties when they go under the hammer?

Get preapproval for your loan before you show up at an auction

The Block Triple Threat Auction

Auction culture in Sydney and Melbourne

Sydney and Melbourne’s buoyant auction culture has been fuelled by strong buyer demand, with both markets clearing above 80% on average in the past 12 months.

Enter Spring and high clearance rates have fallen dramatically with little sign that they will bounce back any time soon.

Despite this, both Sydney and Melbourne have seen a higher number of properties go under the hammer this season. Sydney saw a record of 1036 properties listed (up from 880 the previous week) and Melbourne saw 1046 properties listed (up from 992 the previous week).

What does this mean for Melbourne and Sydney?

Low clearance rates typically indicate lower buyer confidence as buyers become hesitant to invest, which translates to lower demand and competition for available listed properties.

If the exponential upward trend proves unsustainable, and the market cools, this will confirm speculation surrounding whether the Australian property market is in a bubble.

Impact of the Reserve Bank of Australia (RBA)

The Reserve Bank’s monetary policy decision for October 2015 will influence auction markets in both Sydney and Melbourne.

If the RBA maintains the cash rate, or cuts the official cost of borrowing by 25 basis points, this may ease property investor fears of a cooling market and encourage buyer demand.

Melbourne activity

In August this year, Melbourne trumped Sydney with a 2% higher clearance rate of 78.8%.

This month, Melbourne recorded a Saturday clearance rate of 74.5% which is the lowest rate since February.

Despite falling clearance rates, the city’s auction price trend continues to rise from previous weekends and auction sales prices are around 10.2% higher than the $731,875 recorded over the same weekend in 2014.

Experts believe that if any type of price correction in the Melbourne market occurs, and property prices begin to fall, this won’t occur until the final quarter of this year.

Auction results for this month are outlined below;

  • An unrenovated property in Brunswick East went for a staggering $1.6 million above the $3.4 million reserve.
  • A six-bedroom property in Kew went for the highest disclosed sale price for $4.2 million.
  • The most affordable reported property sold on the weekend was a one-bedroom apartment located at 8/4 Prince Street, Essendon North which went for $237,000.
  • A one-bedroom unit based in Altona sold for $256,000.

What does this mean for The Block auction?

Despite signs of a healthy auction market, record low clearance rates in Melbourne suggest that buyers are becoming more selective- particularly at the premium end of the market.

South Yarra auction results

Interestingly, a townhouse located in South Yarra (where The Block is located) passed in earlier this month at $3.4 million, which was significantly under the reserve of $3.95 million.

In addition, a 2-bedroom apartment situated at 2704/3 Yarra St passed in at auction for $930,000.

Another 5-bedroom apartment at 17 Ralston Street passed in at a vendor bid of $2,500,000 and a 3-bedroom house passed in at auction for $2,625,000 this month.

From the available data, a total of 30.77% (4/13) of South Yarra properties were passed in at auction so far this month.

Does auction order impact the final sales result?
How much more do we pay for The Block properties?

This market trend, however, is not exclusive to South Yarra, as several other Melbourne properties were passed in for September, including a five bedroom property in Ivanhoe, where bidding finished well below the $3.25 million reserve at $3.05 million.

Buyers advocates believe that clearance rates in Melbourne could fall as low as 65% over the next couple of months-- which could be concerning for the Block newbies.
Will the auction this year resemble the disappointing results from Season 4 of The Block where three of the four properties were passed in? And if not passed in, will there be enough demand in South Yarra for the contestants to trump their reserves?

Sydney activity

Sydney’s clearance rate of 71.3% is the lowest for 2015 and represents the 10th consecutive week that the auction market recorded a result less than 80%.

The results for Sydney’s auction market are as follows;

  • A run-down Burwood property sold for $700,000 above the reserve at a $3.2 million price tag.
  • A nine-bedroom property in Cobbitty sold for $5.45 million which represents the highest disclosed auction sale price for Greater Sydney.
  • The most affordable auction sale was a two-bedroom apartment in Liverpool that went under the hammer for $344,000.

Despite this, auction clearance rates have fallen in all sub-regions over the past three months, with the inner west and lower north shore precincts the only precincts where clearance rates remain above 80%.

At the lower-priced end of the spectrum, Sydney’s south west is significantly underperforming, clearing just 54%.

In Sydney, there is evidence to show that the market is slowing particularly in more affluent suburbs. For instance, a five-bedroom Bondi property was passed in at auction earlier this month for $2.965 million.

APRA’s Intervention

The activity in Sydney reflects signs of weakening demand from investors in the wake of tougher lending conditions imposed by the Australian Prudential Regulation Authority (APRA).

Some of the lowest clearance rates were in Sydney’s south-west region at around 50%. These areas have generally been sustained by investors which suggests that the APRA intervention is impacting Sydney’s auction market.

Looking at going to an auction this weekend? Get pre-approval with one of the below loans.

Low clearance rates and lots of supply could mean that buyers are gaining more power. Do your research and arm yourself with a loan pre-approval before going to an auction and you could walk away with your dream home.

Rates last updated December 5th, 2016
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
St.George Basic Home Loan - Promotional Rate (Owner Occupier, P&I)
A no frills loan with a competitive rate and a maximum LVR of 95%.
4.08% 4.09% $0 $0 p.a. 95% More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Years Fixed (Owner Occupier)
Enjoy a low interest rate and borrow up to 95% (with LMI) of your home value.
3.99% 4.81% $0 $0 p.a. 95% Go to site More info
NAB Base Variable Rate Home Loan - Owner Occupier (P&I)
Submit online application form and get pre-approved.
4.10% 4.14% $0 $0 p.a. 95% Go to site More info
4.40% 4.79% $0 $395 p.a. 95% Go to site More info
Westpac Fixed Options Home Loan Premier Advantage Package - 2 Years
Apply online and complete the application form to find out if you pre-qualify. You'll be contacted by phone or email within 24 hours.
3.99% 4.97% $0 $395 p.a. 95% More info
NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier)
Get pre-approved with a simple online application form.
3.75% 4.87% $0 $395 p.a. 95% Go to site More info

Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

Was this content helpful to you? No  Yes

Related Posts

Ask a Question

You are about to post a question on finder.com.au

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At finder.com.au we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the finder.com.au privacy policy, receive follow up emails related to finder.com.au and to create a user account where further replies to your questions will be sent.

Ask a question
feedback