subscribe to our newsletter

Property risks rising with new supply pipeline

One of Australia’s most respected property commentators has warned of the effect that record building approvals will have on a weakening housing market.

CoreLogic RP Data research director Tim Lawless said a default risk has emerged in parts of Australia where property prices are falling even as considerable numbers of off-the-plan homes come onto the market.

“Just over 250,000 new houses and units have been approved over the last 12 months, which is a record level,” he said.

“As we move into 2016 those approvals move into the commencement phase and then the completion phase.

“The risk is we are just starting to see the housing market softening as this new housing supply comes onto the marketplace.”


Mr Lawless said some building approvals will fall through due to some developers withdrawing from the market or the rate of pre-sales not being met as buyer demand cools.

“It doesn’t seem to be the case, at the moment, that we are looking at a market crash, but probably a modest decline in dwelling values,” he said.

“If we saw those declines become sharper or more concentrated in areas of new supply, I think that’s where the risks become substantially higher.”

Mr Lawless said off-the-plan buyers could struggle to settle purchases if a significant gap emerges between yesterday’s contract price and today’s valuation.

Buyers would also find it difficult to negotiate new terms with their bank given the tightened lending environment that emerged in mid-2015, he added.


According to the Housing Industry Association, new home starts increased for a third consecutive year in 2014-15 to a record 211,860 and are forecast to exceed 200,000 in 2015-16.

However, all that new stock is coming onto the market at a time when CoreLogic RP Data statistics suggest that both Sydney and Melbourne appear to be cooling.

Mr Lawless highlighted two things that would need to happen if the country was to avert a default crisis.

“Firstly, we would need to have a market situation where the settlement value compared to the contract value is roughly the same, if not higher,” he said.

“The other element that may avert some of the risk is if we do see changes or some relaxation in lending policies, which doesn’t seem to be on the cards either.”

[Related: Increased supply of housing 'has to be the answer': RBA]


Property risks rising with new supply pipeline

Latest News

A new FOI document released by the RBA shows that it believes economic risks may increase due to low interest rates, and that house prices...

Plans to purchase a home declined in December 2020, while home loan application numbers also weakened compared with November, according to ...

December was the second strongest month for new home sales in the 20-year history of the survey, which was attributed to the HomeBuilder pac...


Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.


LATEST PODCAST: A new record in mortgage approvals

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

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