SYDNEY -- Tougher rules designed to bring down Australia's high-flying urban real estate market appear to be working, with reports that once-brisk Chinese investment into the country's property sector has fallen sharply.
Now the concern is that too abrupt a reversal of recent years' housing price gains could hurt one of the world's most solidly performing economies.
Sydney's median home price fell to 878,000 Australian dollars ($665,000) in March, data from CoreLogic shows, down 0.3% from February and 2.1% from a year earlier. Similar month-on-month decreases were seen in Melbourne, Adelaide and other cities.
The residential property price index for Sydney declined for two straight quarters through December 2017, the Australian Bureau of Statistics reports.
The per-room price for condominiums has dropped between 5% and 10% over the past year, said a real estate agent in an exclusive residential area of the Sydney suburbs. Some newly built condos from major developers remain unsold, he added, estimating it will take one to two years for prices to return to their earlier highs owing to the retreat of Chinese buyers and stagnant wages.
Urban home prices surged in recent years thanks to rapid urbanization, a low-interest monetary policy, a commodities boom and an influx of foreign investment. In Sydney, housing prices jumped an estimated 70% compared with five years earlier. That upturn has frustrated local house-hunters and raised the household debt ratio.
The federal government stepped in through the Australian Prudential Regulation Authority, a financial sector watchdog. Last year, ARPA mandated that financial institutions adopt tighter screening processes for home loans.
The government also strengthened regulations on foreign investment in Australia's real estate market. A law levying a charge on absentee foreign homeowners passed late last year. Foreign buyers also face higher capital gains taxes.
These changes have all but eliminated purchases by Chinese investors, said a realtor. In major cities, construction started on only 128 multifamily urban dwellings last year spanning 21,700 rooms, about half of the 248 starts in 2016, market research firm Urbis reports.
"The housing boom is really over," former Prime Minister Paul Keating said at an April conference hosted by the Australian Financial Review. That same month, Morgan Stanley predicted the housing market will grow only marginally this year.
Easy credit also contributed to an overheated market. The Reserve Bank of Australia has kept the policy rate at an all-time low of 1.5% since August 2016. "The next move in interest rates by us is likely to be up, not down," Assistant Gov. Christopher Kent said in April. However, "there is no particular rush to do that," he added.
Though market forecasts say the policy rate will remain unchanged until next year, an eventual rise in interest rates could depress housing prices further.
The housing sector has propped up the Australian economy even after the commodity bust, creating jobs in construction and other related industries. A sharp decline in home prices would threaten these gains and could spoil what has been the longest sustained expansion of any modern-era economy.