For example, some lenders are demanding forensic details about the borrowers' identity, including having all mortgage documents signed by customers and witnesses rather than electronically submissions without a paper copy.

But the overall impact is uneven with demand for top end property worth more than $30 million remaining strong while sellers are heavily discounting small inner-city apartments in high density zones.

Agents claim there has been a sharp increase in private – or board room – auctions where a handful of serious buyers, or their representatives, make bids in an office, typically a real estate agents' board room.

Small rate changes or more evidence of earnings and capacity to pay is also unlikely to impact on high net worth buyers, which is typically defined as those with assets worth more than $2m in addition to their home.

"The $3 million to $5 million market is getting belted," Mr Morrell said. Chris Hopkins

Unrealistic expectations

Latest government numbers show that apartment transfers, which is a barometer of underlying sales activity, are down by more than 7 per cent and houses by about 6.5 per cent.

Auction clearance rates are also well down on the same time for last year.


Real estate agents are confident that Australian Prudential Regulation Authority's easing of lending restrictions on investors will also bring back buyers.

But David Morrell, a director of Melbourne buyers' agency Morrell and Koren, said many sellers do not appreciate the market is slowing and have unrealistic expectations of what their properties will make at auction.

Too many spectators and not enough bidders at auctions, according to real estate agents. Peter Rae

"The $3 million to $5 million market is getting belted," Mr Morrell said.

"At last weekend's auctions everything was passed in," he said about auctions in Melbourne's leafy south-eastern suburbs where properties sell in the $3 million to $5 million range. "People just stood there looking about," he said.

Tim Fraser, a partner with Di Jones, a Sydney real estate agency covering metropolitan Sydney, said sellers in comparable Sydney markets are having similar experiences.

"The cautiousness from banks is carrying on to buyers," Mr Fraser said.

Properties which would have last year easily sold in highly competitive markets for $3.2 million are struggling to make $3 million, according to buyers' agents. Jessica Shapiro


The tougher lending requirements are hitting hardest new buyers who have not built up equity from price gains, typically in Melbourne and Sydney during the past five years.

Latest data from Australian Bureau of Statistics show house price growth for the eight capital cities fell to 1 per cent in the December quarter compared to 5 per cent for the year.

National capital property price movements ranged from a 13 per cent rise in Hobart to 6 per cent fall in Darwin.

Tim Lawless, head of research for CoreLogic, which monitors property prices, said regional housing markets improved while the combined capitals' trend softened.

Apartments under pressure

Banks are issuing blacklists of suburbs and high rise apartment configurations where they will not lend, or require bigger deposits and evidence of the borrowers' earning and spending.

"Investments in new inner city high rise apartments are only for the brave," adds Christopher Koren, a director of Morrell and Koren.

Steven Lusi, Direct Property Group director, lenders most major banks are not lending for apartments smaller than 50 square metres and that some high density apartments in Melbourne's Docklands have fallen in value by 10 per cent in the past five years.


"Demand for well built, well priced apartments in small blocks remains strong," Mr Lusi said.

Lenders, who rely on strong and growing loan books to boost margins, are offering big discounts and low rates to buyers with big deposits, steady income and low debt.

Outer suburbs in Melbourne and Sydney, typically around 30kms from the central business districts, that are not close to transport, amenities or a popular school zone are also struggling.

Cities where there is weak economic growth, such as Perth, also continue to under-perform national benchmarks.