Buyers Brush Off Brexit Fears

Date: 29/06/2016

Results for week ending June 26

A day after worldwide financial markets tumbled in response to the UK’s shock vote to leave the EU, the combined capital city auction clearance rate surged to 69.1 percent, up from 67.4 percent last week. Auction volume nationwide remained near par with the previous week at 2,189.

The Stats

Sydney was the standout performer, posting a preliminary clearance rate of 77.1 percent on moderately higher volume of 797 auctions. This is nearly a four basis point improvement from last week’s final result of 73.4 percent.

Melbourne failed to clear above 70 percent for a second week in a row, offering up a similar clearance rate to last week at 68.4 percent. Volume was up slightly, from 964 last week to 1025 this week.

The Graph

The Preliminary Numbers

	Sydney	Melbourne	Brisbane	Adelaide	Perth	Tasmania	Canberra
Clearance Rate	77.1%	68.4%	48.1%	67.6%	28.6%	71.4%	64.5%
Auctions	797	1025	171	89	42	7	55

The Analysis

Buyers were clearly unfazed by Brexit market turmoil, as demand in Melbourne held steady and Sydney buyers showed greater enthusiasm than we’ve seen in months. It was a stellar result, considering the weekend also marked the beginning of the school holidays.

With the Federal election only days away, very few auctions are scheduled for the coming weekend. Investors’ eyes will be focused on the future of negative gearing and the capital gains tax discount.

What It Means For Investors

Many market commentators believe that the chaos brought on by Brexit will serve to highlight the safe haven reputation of the Australian property market. Investors may redirect global capital away from volatile London property into our housing and commercial real estate markets.

Another bullish outcome will likely be even lower interest rates. The RBA was already slated to cut again soon. With the new perils brought on by the EU’s dramas, the chance of a Fed rate cut this year is on the rise. If the US central bank reverts to an easing bias, the RBA will have little choice but to slash our cash rate.

The greatest Brexit danger to Australian investors hinges on the overseas lending market. Most of the capital that Australian banks lend out as mortgages is borrowed at lower interest rates from banks in Europe and the USA. If Brexit turns out to be the first of many dominoes to fall, then credit markets could dry up.

Even then, we’ve seen the lengths to which central bankers will go to boost liquidity and prop up asset markets. There’s little reason we shouldn’t expect more of the same.

For the historical data of weekly auction clearance rates, click here.

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.