Investors are being forced to stump up about 20 per cent more in funding for commercial properties, which has led to many properties not selling at one of the first portfolio auctions of 2019.
Seven of the 16 properties at Burgess Rawson’s Sydney portfolio auction sold under the hammer on Thursday, with two selling before the day. The combined sales of more than $12 million resulted in a clearance rate of 44 per cent.
Burgess Rawson director Simon Staddon said it was “a little bit lower than some of our other auctions” despite a turnout of about 150 people on the day.
He attributed this to the difficulty for investors in securing funding from the banks.
“We’re hearing it a lot from investors, it’s no secret that it’s not so easy to get money out of the banks these days,” Mr Staddon said.
And vendors were not revising expectations to meet the market, he added.
One retail property in NSW’s Parkes passed in at the auction after a vendor bid of $750,000, following an offer from a buyer of $720,000 – an example, Mr Staddon said, that demonstrated how vendor expectations could make or break a sale in today’s tighter lending environment.
“The issue there is it makes the difference between whether the property sells or it doesn’t sell because it’s that close, there was bidding on most of these properties,” he said.
“The Parkes one passed in for 30 grand – that’s almost one bid – a lot of vendors would have put that on the market at the time, but this particular vendor didn’t.”
Mr Staddon noted that the 20 contracts handed out on the Parkes property indicated “good interest”, despite it not selling due to a market adjustment.
“The adjustment in the lending criteria is still taking place, but the appetite generally for investment property is still there.”
His colleague and co-director at Burgess Rawson Darren Beehag agreed.
“That’s an important point because where they could once get 70 to 75 per cent (in loan), they’re quite often back to 50 to 55 per cent lending and to come up with that 20 per cent, it is an issue,” he said.
“We wouldn’t say that today’s result was symptomatic of the market.”
While he did not think the recent banking royal commission and upcoming federal election were factors in Thursday’s auction, he expected the latter to play a role in the second auction of the year in early April.
“It’ll be interesting on a number of scores given that the political environment will come more into play there.”
One property that sold under the hammer was a building in Tahmoor, south-west of Sydney, leased to NAB. It fetched $1,526,000 on a yield of 6.4 per cent, and Mr Staddon said the asset’s affordability made it popular.
“We had strong bidding on that, before the auction we had about 15 contracts out on it,” he said.
“(A rental income of) $100,000 is a bit of a sweet spot in the market, it’s in a popular price point, there’s more buyers looking for an income of $100,000 logically than $800,000 I suppose.”
Another property that found a buyer was a service station in western Sydney’s Toongabbie, which sold post-auction for $2.2 million on a 6.93 per cent yield.
A cafe in NSW’s Googong sold under the hammer for $841,000 and returning a yield of 6.41 per cent, with bidding finishing in six minutes.
Two properties, including one in Bathurst and another in Queensland’s Marcoola, sold before auction.