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Worrying new pattern in property market surfaces for investors

Aerial shot of property

Building approvals for the first half of the year were lower than expected and could have a knock-on impact to the Australian property market.

The Housing Industry Association (HIA) reported that building approvals fell by 15.2 per cent in the first three months of 2019.

The HIA now projects a further 11 per cent drop in building approvals for the rest of the year.

Further, it also forecasts building approvals to decrease to around 184,500 in 2019, 180,000 in 2020, and 183,500 in 2021.

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“Market confidence fell away in the later part of 2018 as dwelling prices corrected, adversely impacting all segments of the market. Investors and owner-occupiers are delaying purchase decisions, and foreign investment has also fallen dramatically due to a range of government restrictions,” HIA chief economist Tim Reardon said.

Mr Reardon also said that, if the central bank doesn’t get the timing right with a cash rate cut, “it might be too late for the home building industry, which will adjust employment levels for this lower level of activity”.

“Unfortunately, a cut to interest rates in 2019 will not have the same positive impact on new home building as in previous cycles,” he said.

Mr Reardon said the housing market is also still recovering from restricted lending, prompted by a cap imposed on interest-only lending last year.

“Banks are assessing borrowing capacity against a minimum floor of a 7.25 per cent mortgage rate and for interest-only loans to be assessed on a principal and interest basis for the term of the loan,” he said.

“There is a need to downgrade our expectations of the speed of the current downturn in the housing market further,” he added.

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Worrying new pattern in property market surfaces for investors
Aerial shot of property
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