Static interest rates, high rents, and property FOMO driving rising clearance rates

As people flood to inspections of properties up for sale, their first question often throws real estate agent Mary Anne Cronin off-guard.

“Will the owner consider selling before auction?” they ask. “We’d love to put in an offer.”

For Cronin, of Sydney’s Upstate Real Estate on the northern beaches, it’s a welcome return of confidence to the market, following three consecutive pauses in the cash rate by the Reserve Bank of Australia (RBA), a rise in auction clearances and a still-tight rental market.

“Buyers seem to have confidence again, although sometimes there’s just a hint of hesitancy,” she said. “But good properties are selling well, apartments are almost flying out of the door and even off-the-plan sales are higher. There’s still a bit of FOMO [Fear Of Missing Out] around.”

That’s a buoyancy being reflected in Melbourne, too. “We’ve had record numbers of inquiries for market entry-level townhouses, all the way to much larger homes and new construction off the plan,” said Leonard Teplin, director of Melbourne’s Marshall White, who’s currently selling apartments in projects Society in Armadale from $1.8 million to $17.25 million, and Windsor Park in Prahran from $1.8 million to $5.2 million.

“We’re certainly seeing a number of new buyers entering the market with a lot of families finding it hard to find new rental properties, so we’re getting a lot of inquiries from frustrated tenants. As a result, a lot of them are thinking of buying real estate instead, especially with such high rents at the moment. It’s often now cheaper to buy property than to rent it, so they’re adding to the market.”

Certainly, latest Domain figures show that rental conditions, while they’re easing a little, are still tough. The national vacancy rate has remained steady at 0.9 per cent for the second month in a row, which is marginally higher than the position earlier this year, but Melbourne and Sydney face the greatest crises with the lift in the number of overseas migrants arriving and wanting to settle in our two biggest cities.

In Melbourne, the rate is steady at 1 per cent for the third consecutive month, although Domain chief of research & economics Dr Nicola Powell reports vacant rental listings fell in August after rising for five months in a row.

“But the vacancy rate remains 0.5 percentage points higher than last year, the largest of all the capitals,” she said. “Melbourne continues to see the greatest annual fall in rental stock of the capitals, down 32.3 per cent annually and an all-time low for the month of August. A significant boost in supply is needed to alleviate those tight conditions.”

Sydney’s vacancy rate decreased to that same 1 per cent, driven by a fall in rental supply. Annually, vacant rental listings remain down by 6 per cent but Powell said this is an improvement compared to the deeper declines experienced in the first few months of the year.

Tenants keen to escape the rental trap are just one of the drivers of the rising auction clearance rate too. On Domain statistics, those rates have increased both over the month and annually across the combined capitals to 69.6 per cent and in the regions to 52.7 per cent.

In Sydney in August, the rate hit 72.1 per cent, and in Melbourne 68 per cent. “Across the combined capitals, this is the strongest run of clearance rates in two years, and across the combined regionals, the strongest since April 2022,” Powell said.

“This aligns with the continued recovery in Australia’s housing market after the recent downturn, with increasing confidence likely motivating sellers back to the market and helping to boost supply. For the combined capitals, the proportion of properties sold before auction day has also risen and remains elevated historically, which indicates that sellers are more likely to accept offers before auction day due to robust offers from buyers.”

That confidence has now extended to apartments being sold off the plan, too, with developers reporting strong interest in new stock. At R.Corporation, sales and marketing manager Steve Williams reports that sales are travelling well.

“We’re seeing an increased level of interest in our projects,” said Williams, who’s currently selling the 80 apartments left in the 450-unit R.Iconic project in South Melbourne priced from $550,000 to $3.5 million.

“Three interest rate holds in a row have brought a lot of people back into the market and even those not buying today are still much more engaged with the property-buying process.”

APL Developments’ Andrew Leoncelli is just about to launch three-bedroom apartments at Malea on Central Park at Malvern East – from $2.5 million to $6.5 million – and even at that top-end price range, is discovering lots of interest. “The downsizer market has remained strong in the east and south-east and high quality projects are continuing to sell well,” he said.

Up the east coast in Sydney, as well as those healthy auction results, project marketers are also finding that buyers’ time-frames from inquiry to action are reducing substantially.

“When interest rates stopped rising, our data shows that the period from people first asking about property to buying it has halved, from perhaps six months to around three,” said Colliers national director Blake Schulze, with his projects including The Bryson in Chatswood selling from around $845,000 to $7.5 million, and Kensington by Toga from $950,000 to $2,670,000.

“In addition, 72 per cent of our buyers in the past three months have been people who’ve never purchased off the plan before. People are now looking at apartments as a lifestyle option, and the NSW Building Commissioner has helped confidence in their quality. Developers just need to provide the right kind of apartments in terms of size, finish and level of amenity with lots of downsizers and rightsizers and investors buying.”

With a series of large master-planned developments that appeal to a broad range of buyers, Frasers Property sales and marketing director Dino Carulli is also finding that demand is consistently strong. With rising prices and higher interest rates, many buyers are undertaking much more due diligence and choosing reputable developers to buy from.

“Buyers are coming to the conclusion that now is the right time to buy, and deciding what to buy,” said Carulli, who’s currently selling apartments in Midtown MacPark, about to start construction, from $730,000 to $1.738 million. “As well, people in rental properties are thinking, with the rental vacancy rate still so low, of buying.

“The hardest part for them is saving the deposit, which is why we’ve partnered with Coposit where, if customers can come up with $10,000 towards the deposit, they can save the rest during the building phase.”

The backlog of buyers from COVID still means demand is pushing up prices, believes Kay & Burton’s Danielle Balloch at Boroondara while Cameron Pritchard, partner and auctioneer at Jellis Craig, Brunswick, is finding downsizers and upsizers are really driving the market.

As the warmer weather arrives, there’s likely to be more stock to choose from on the market, as well.

“We’re now seeing a lot of investment stock coming back onto the market,” said Debbie Donnelley of PPD Real Estate. “With so many rate hikes earlier, some people are finding that rents aren’t covering their mortgages, so they’re choosing to sell,” she said.

“As well, with so much interest in buying property, we’re now finding that three-quarters of our sales are coming through buyers’ agents, which I think is indicative of still some of that FOMO.”