Powered by momentummedia
nestegg logo
Powered by momentummedia
nestegg logo
nestegg logo

Invest

Central bank remains bullish on apartment sales

By Reporter · June 23 2016
Reading:
egg
egg
egg

Central bank remains bullish on apartment sales

author image
By Reporter · June 23 2016
Reading:
egg
egg
egg

The Reserve Bank believes apartments will continue to play an important role in the economy despite tighter credit conditions putting pressure on builders and buyers.

In its June quarter bulletin, the Reserve Bank’s Michael Shoory provides an overview of the growth of apartment construction in Australia.

“The increase in apartment construction has reflected a range of factors, including the nature of land supply constraints and affordability considerations, together with a desire to reside in close proximity to employment centres and amenities,” Mr Shoory said.

“Given that these factors are likely to persist, apartments are expected to continue to play an important role in providing new housing supply.”

Apartments accounted for one third of all residential building approvals last year.

Advertisement
Advertisement

Fears over settlement failures have been mounting following a crackdown on foreign buyers, who have been a key driver of the demand for new dwellings.

Banks have also added more limits to the number of foreign-buyer pre-sales that developers can use before obtaining finance for new projects.

Mr Shoory said banks typically cap the share of a developer’s pre-sales that can be accounted for by non-residents, generally at between one fifth and one third of the value of debt obtained.

With lower LVR limits for investors and the introduction of tighter credit controls on new purchases, settlement risk has become a major worry in recent months.

Lenders do not formally assess debt serviceability or provide unconditional financing approval until settlement is ready to take place.

“If the amount the lender is willing to lend is significantly less than the purchaser expected when they entered into the off-the-plan contract, the purchaser may be unable or unwilling to settle, in which case they would be liable to forfeit their deposit,” Mr Shoory said.

“This settlement risk is magnified if prices (for similar apartments) have declined over the development period (leading to valuation below the purchase price) or if the buyer’s financial position has deteriorated (in the event of unemployment, for example),” he said.

“Instances of buyers failing to settle their apartment purchase – settlement failures – can affect the financial position and credit risk of apartment developers, leading to potential losses for lenders.”

However, despite these risks, the central bank is confident apartments will continue to play an important role in the future.

“Apartments have driven the increase in new dwelling construction in Australia since 2010 and have provided an important contribution to economic growth and employment,” Mr Shoory said.

“Apartments are likely to continue to play an important role in providing new housing as land-supply constraints motivate prospective home owners to purchase higher-density dwellings (which use land more intensively and are therefore less expensive relative to larger, lower-density houses), and as tenants and residents choose to live closer to employment centres and amenities for convenience.”

 

Central bank remains bullish on apartment sales
nestegg logo

Forward this article to a friend. Follow us on Linkedin. Join us on Facebook. Find us on Twitter for the latest updates
Rate the article

Join The Nest Egg community

We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians

Your email address will be shared with nestegg and subject to our Privacy Policy

From the web

Recommended by Spike Native Network

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.

Copyright © 2019 MOMENTUM MEDIA