Some property developers, both local and offshore, appear to be delaying projects as a combination of tightened lending, rising building costs, a drop in Chinese buyers and an impending apartment oversupply looms.
Signs of a cooling market come amid a sharp decline in investor lending and growing international and Reserve Bank concern about the major banks’ exposure to Australia’s notoriously high house prices.
The value of investor home loan approvals fell a further 5 per cent to $11.3 billion over the month to April, almost 21 per cent below the level of a year ago, according to figures released by the Australian Bureau of Statistics yesterday.
After soaring to almost 45 per cent of new home loan approvals in mid-2015, investment lending has fallen back to about one third of all new loans approved in the wake of a regulatory crackdown.
The slowdown in investor finance has not reassured Moody’s, which yesterday warned that rising house prices and leverage were a “credit negative” for the big four banks, laying the groundwork for a possible house price slump. “High housing prices do raise the sensitivity of the banks to downside rise in the housing market,” said Daniel Yu, a senior Moody’s analyst.
A handful of large-scale apartment projects in inner Brisbane — a market previously singled out by the RBA — have been delayed and several sites are trickling back on to the market.
Melbourne-based developer Fridcorp, which has a $1.7bn, 2100-apartment development pipeline, will hold off on the development of its 640-unit project in the Brisbane suburb of Albion as it assesses rising building costs.
“It would be reckless of us to go to the market if we can’t deliver for a certain price,” Fridcorp founder Paul Fridman said.
Brisbane developer BPM, which has largely pre-sold its 2500-unit development book, will scale back the number of apartments in its Night Edge project in Brisbane’s inner Fortitude Valley from more than 300 to 160 units, instead adding a five-star hotel.
Both developers believe a number of projects across capital cities will fail to proceed, saying this would benefit a market that could not absorb the quantity of apartments on the drawing board.
Paul Riga, an associate director of planning and research group Urbis, said the number of unit projects being marketed was already falling away with 24 developments housing 2400 units due for a marketing launch in Brisbane in the March quarter, down from 34 projects with 3700 apartments in the December quarter.
Mr Riga expects further slippage in the June quarter.
Urbis estimates building costs in Brisbane have risen 16 per cent in the past year. “A number of developers have approval, but are trying to sell the site under the radar,” Mr Riga noted.
Offshore developers are also becoming more cautious. Chinese-backed Visionary Investment Group, headed by Michael Guo, has halted its hunt for development sites in Australia, awaiting further clarity on policies related to overseas buyers.
“At this moment, we are not doing any due diligence on any acquisition or potentially buying any new site anywhere in Australia before the election,” Mr Guo told the Aus-China Property Developers Conference in Sydney yesterday.
“We don’t want to see muddy waters any more. We want to see a clear direction.”
Mr Guo, with an ambitious mixed-use project with about 1000 units in the Sydney CBD, told The Australian the company would rather be more cautious now given the banks’ lending restrictions on overseas buyers.
“The election will likely bring many changes in policies, such as negative gearing and particularly policies related to foreign buyers,” he said. “These will definitely affect our project sales and our target clients.
“If we negotiate with vendors with current assumptions and buy the sites now, there will be unknown risks if a new government comes in and changes the policies. That’s why we decided to stop everything (in terms of new acquisitions) until there is clarity.”
VIG was still working on gaining development approval for its multi-billion-dollar Sydney CBD project on Castlereagh Street, expecting to launch some apartments later this year, Mr Guo said.
In the wake of the Reserve Bank’s May decision to cut rates to a record low of 1.75 per cent, Sydney and Melbourne dwelling prices rose 3.1 per cent and 1.6 per cent in May.
“Building approvals have trended higher recently, and are likely to be supported in the coming months by both solid house price gains and lower interest rates,” ANZ senior economist David Cannington said.
“Although we expect such an adjustment to be gradual, the likelihood of an outright downward correction in prices is rising,” he added, pointing to households’ rising indebtedness. Australian households’ this year overtook the Swiss as the most indebted in the world, with loans equivalent to 125 per cent of GDP.
Keeping rates on hold this week, RBA boss Glenn Stevens pinpointed the rising glut of apartments and said house prices had started to rise again.
“With more RBA policy easing expected, further progress on dampening investor lending may be more problematic,” said Commonwealth Bank economist John Peters.
Original article published at www.theaustralian.com.au by Turi Condon, 9/6/16
