Melbourne auctions firm after rate hike as CGT hits back at investors, PropTrack shows initial approval rate at 65 per cent.
Melbourne buyers barely blinked after the rate hike, but the debate over the new capital gains tax is weighing on investors as auctions tighten.
While job losses remain strong through February, experts warn the combined pressure of reduced borrowing capacity and renewed tax uncertainty is reshaping behavior across the market.
Baseline Finance Director Ari Levinson said recent price rises had already reduced the borrowing power of average Melbourne households, intensifying competition even as consumer demand still looked strong.
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Borrowing power typically falls by about 2.3 percent to 2.5 percent for every 0.25 percent increase in interest rates, he said.
A Melbourne couple who earned a combined $180,000 a year and were previously able to borrow about $925,000, which equated to $21,000 to $23,000 in haircuts, was reduced to $902,000 to $904,000.
“That may not sound like much on your own, but it can be the difference between competing with confidence and missing out,” said Mr Levinson.
Baseline Finance Director Ari Levinson says rising rates are strengthening the borrowing power of Melbourne buyers in February.
How much rate hikes have cost consumers: Finance Baseline data shows a Melbourne couple’s borrowing power has dropped from $925,000 to around $902,000-$904,000.
He also warned that the increase could put pressure on household budgets, pushing many buyers into mortgage stress, which is often defined as paying more than 30 to 35 percent of gross household income.
Mr. Levinson said buyers planning to bid in the coming weeks should check their borrowing limits in advance, avoid taking out new debt, and talk to buyers before the auction, noting that even a small change in credit or interest rates can affect approval.
The double whammy of higher interest rates and the renewed CGT debate is weighing on buyers, investors and tenants across Melbourne.
Consumer Advocate Advocate Cate Bakos said that buyers have bid for the highest prices, with little evidence of uncertainty at appraisals or auctions.
“What’s interesting is that I’ve never seen anyone back down,” said Ms. Bakos.
“Buyer inquiries have flowed almost seamlessly since last year, and even after the price announcements there was no noticeable drop.”
Consumer advocate and PIPA chair Cate Bakos says Melbourne buyers have put a big price on the price increase, and auction competition remains strong.
Ms Bakos said CGT uncertainty was important for investors and prospective investors, but the effects could spill over into the rental market if more landlords moved out.
“That’s a puzzle,” he said.
“Disdainful investors risk taking out rental stock if we don’t have enough rental housing.”
Alba director Thomas Mifsud says investors are weighing CGT uncertainty as part of broader portfolio decisions over the next 12 to 18 months.
Alba director Thomas Mifsud said investors tend to respond to policy uncertainty in phases rather than rushing to sell.
“The first response is reaction – people pick up the phone and ask, ‘How does this affect me?'” Mr Mifsud said.
“Once sentiment settles down, it becomes a portfolio question.”
He said most existing investors are unlikely to sell immediately, but many will review the strategy in the next 12 to 18 months, depending on how markets and policy developments evolve.
“Existing owners tend to hold on as long as possible,” Mr Mifsud said.
“It’s the people sitting on the sidelines trying to get in who feel the most.”
33 Stephens St, Balwyn North sold for $3.135m as Melbourne auctions held firm despite recent price increases.
6 Bayles Crt, Donvale sold for $2.003m, underscoring the continued demand for quality family homes at Melbourne auctions.
Melbourne’s auction market showed little slack, with PropTrack figures showing a first approval rate of 65 per cent from 353 results reported, with 230 homes sold.
A number of strong results at the end showed continued deepening of demand for luxury homes, including a $3.135m sale in Balwyn North and a $2.003m result in Donvale, while close to $1.8m results in Box Hill North and Mentone also underpinned buyer appetite.
35 Ashley St, Box Hill North sold for $1.79m as buyers remained active following the RBA’s rate hike.
113 Whitby St, Brunswick West sold for $1.69m as an inner-city property at Melbourne auctions.
Inner-city demand has caught up, with a Brunswick West home selling for $1.69m.
Agents said some buyers remained wary about the price ceiling, but competition for A-grade homes was resilient, suggesting many buyers had already factored higher borrowing costs into expectations before stepping up to bid.
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