RBA Fears Potential Off-The-Plan Settlement Fallovers

By: Property Mash: October 20, 2016, Updated: January 21, 2019

In a recent report The Reserve Bank of Australia raised concerns over the possibility that some property settlements on new apartments may fall over due to slowing population growth and tighter lending restrictions by banks. Both Brisbane and Melbourne are at the greatest risk according to the RBA, with Perth is also in the line-of-fire.

The RBA’s Financial Stability Review says inner city suburbs are at the most risk, with concerns that the construction pipeline may be too large when compared to the existing stock of housing and current sales rates.

As population growth slows, the three cities previously mentioned risk experiencing a slowing property market, with supply outpacing demand.

Notwithstanding these comments by the RBA, the picture is not black and white. In a recent report by ANZ Research (below) the Banks research team reported that there is actually a shortage of dwellings in Qld at present, and it is actually higher than 10 years ago.

anz-housing-market-balance

ANZ Research economists David Cannington and Justin Fabo state that a high level of completions with low population growth would expose these market to potential price falls, however that this had to be counter balanced with the fact that Queensland currently faces a significant housing shortage.

The RBA reports that tighter lending restrictions by banks has delayed construction on many projects and in some cases caused developers to sell their sites in order to minimise losses. Other developers have funded their projects through bank debt, placing them at greater risk of default. Collectively this is significantly reducing the amount of new dwellings entering the market, meaning that much of the muted oversupply concerns due to historically high building approvals may not yet materialise.

The report warns “If apartment markets were to turn down and settlement difficulties become more widespread, banks would be more likely to incur some loan losses.”

It also recommends slowing construction in order to lessen the risk of oversupply, along with financiers to lend only to those that can repay their debts. Again both actions will slow Developers bringing new projects to the market which should reduce concerns amount the over supply concerns many have raised.

SOURCES:

Investor Daily – RBA Warns of Off-The-Plan Settlements

Business Insider – CHARTS: Australia’s ‘Significant’ Housing Shortage

Queensland Treasury – Population Growth Highlights and Trends, Queensland, 2016 Edition

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