Australia's property market weakens as buyers step back

Herron Todd White has reported a sharp weakening in Australia's property market in its latest monthly review.

According to the valuation firm, falling dwelling values, lower sales volumes and longer selling times point to a downturn that has spread across market segments.

National dwelling values fell 3.7 per cent over the September quarter, which the firm described as the largest quarterly fall since September 2022. Sales volumes were more than 17 per cent below a year earlier, while the median time a property spent on the market reached 47 days, about double the period recorded a year ago.

Peter Maloney, chief executive officer of Herron Todd White, said the shift in market conditions reflected weaker demand rather than heavy distress selling. "This isn't a market flooded by forced sellers. It's one where buyers have stepped back."

He also warned about the use of automated valuation tools in a falling market. "When indices are corrected after the fact, any lending decision based on automated or desktop estimates effectively works from last month's market," Maloney said.

Cameron Kusher, chief economist of Herron Todd White, said the decline had become more pronounced. "It's clear the market downturn is both broadening and accelerating and, with another interest rate increase in late September, this is likely to continue," Kusher said.

Vendor behaviour has also shifted. The median vendor discount widened to 4.3 per cent from 3 per cent a year earlier, suggesting sellers are adjusting expectations to meet softer buyer demand.

At the same time, rental growth remained modest. National rents increased 0.5 per cent over the quarter, despite concerns that investor tax changes in the federal budget would place stronger upward pressure on rents.

Prestige market

At the upper end of the residential market, Herron Todd White's Prestige Index held at 51 out of 100, the first month since June in which sentiment did not weaken further. Perth remained the strongest prestige market at 80, while Sydney and Melbourne both stood at 35.

Recent transactions in Sydney's eastern suburbs showed continued pressure on seller expectations. A Point Piper property changed hands for AUD $75 million after first being guided at AUD $85 million, while a Bellevue Hill home sold for AUD $29.5 million.

Shaun Thomas, director of prestige residential at Herron Todd White, said the pricing gap was significant. "Both these properties sold for around $10 million below initial expectations, showing vendors still need to meet the market in this price bracket," Thomas said.

First-home risks

The review also focused on first-home buyers, with Herron Todd White estimating that about half now purchase through a government-backed scheme. Many of those buyers enter the market with deposits of about 5 per cent, a structure the firm said leaves limited equity buffers if prices fall.

One example cited was on the Gold Coast, where a unit in Coomera sold for AUD $725,000 in July after a comparable unit sold for AUD $800,000 in February. The firm presented the transaction as evidence that entry-level buyers may be particularly exposed in a weaker market.

Kevin Brogan, national director of group risk and compliance at Herron Todd White, said the structure of these programmes means governments now carry direct market exposure. "First home buyer schemes are no longer just providing subsidies, but government is now acting as a direct financial stakeholder as well," Brogan said.

He added: "New shared equity and LMI-backed schemes are exposed to potential losses in a market downturn, particularly as buyers may be purchasing with less personal equity."

Office entry point

In commercial property, softer office conditions have pushed more strata office suites in Sydney's central business district, city fringe and Parramatta below the AUD $1 million mark. The report said this has widened access for first-time commercial investors looking for smaller lots.

A 28-square-metre office suite in Surry Hills sold for AUD $340,000, and average yields were put at about 6 per cent. Those figures point to lower capital entry points than in stronger market phases.

Angeline Mann, director of commercial at Herron Todd White, said the shift had changed the buyer profile. "This market softening has created opportunities to acquire properties at more accessible price points, making them particularly attractive to first-time commercial investors," Mann said.

Rural pressure

The rural section of the review said the Commonwealth Environmental Water Holder now controls slightly more than 30 per cent of irrigation water entitlements across the Murray, Murrumbidgee and Goulburn systems after more than a decade of buy-backs. The assessment came as parts of Victoria, South Australia and southern New South Wales were heading towards one of their strongest grain harvests in years.

Graeme Whyte, director at Herron Todd White, criticised the long-term cost of water policy settings. "There is an unfortunate irony in the federal government buy-backs of water in the past 10 years, at a cost of billions of dollars, involving water that was naively over-allocated (at no cost) by state governments in the 1970s and 1980s," Whyte said.

"The Australian taxpayer, as well as irrigators, are now paying dearly for the mistakes of the past," he added.