Australia record home sale highlights bubble risks

A Sydney mansion has been sold for A$75m (€51.5m), a record for a single house in Australia, as regulators fret about an emerging housing bubble.

Scott Farquhar, co-founder of software group Atlassian, bought the 7,000 square metre harbourside estate from the Fairfax family after the vendors turned down higher offers from developers who wanted to carve up the property into separate units.

“It is the perfect match for both buyer and home, as the entire estate will be revitalised and remain in one ownership for many years to come,” Ken Jacobs, managing director at Christie’s International real estate, told the Financial Times on Monday. “This result has been the desire of the owner and Sydney-siders alike.”

Sydney’s residential property prices have more than doubled since January 2009. The previous record price was set by Chinese billionaire Chau Chak Wing in 2015, who bought a harbourside mansion for A$70m from Australian casino tycoon James Packer.

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Surging house prices are a concern for global regulators as they seek to prevent asset price bubbles in an era of ultra-low interest rates ushered in by the financial crisis in 2008. Australian regulators last month joined their counterparts in New Zealand and Ireland by imposing macroprudential rules targeting risky lending in a bid to slow house price inflation.

This follows warnings from former bankers and regulators, including David Murray, chair of a 2014 government inquiry into the Australian financial system, who said there were signs of an emerging “Dutch tulip” style bubble that posed a risk to financial stability.

Home prices have risen 11.2 per cent over the past year amid a boom in investor activity spurred on by record-low interest rates, tax breaks for investors and foreign buyers. Prices in Sydney and Melbourne increased 16 per cent and 15.3 per cent respectively.

Investment bank UBS said on Monday it was “calling the top” of the Australian housing market as mortgage repayments for new home buyers had now hit a decade high.

“While the historical trigger for a housing downturn of RBA rate hikes is still missing, mortgage rates are rising, and [CONSUMER]sentiment to home buying has collapsed to a record low,” UBS said in a note.

Sydney was ranked the world’s second least affordable major housing market in the 2017 Demographia International Housing Affordability Study, with prices 12.2 times median annual pre-tax household income in the third quarter of 2016, compared with 19 times for Hong Kong and 8.5 times for London, which was ranked eighth on the list.

Housing market conditions slowed in April in both Sydney, where prices remained flat, and Melbourne, where prices rose 0.5 per cent in the month, according to April data released by CoreLogic on Monday.

Tim Lawless, CoreLogic’s head of research, said that while seasonal factors may have played into the weaker result in Sydney and Melbourne in April, regulatory action was probably denting investor demand for loans.

“In a city like Sydney, where more than 50 per cent of new mortgage demand has been from investors, a tighter lending environment for investment purposes has the potential to impact housing demand more than other cities,” he said.

(Copyright The Financial Times Limited 2017)