The Reserve Bank of Australia has issued a fresh warning over the “ongoing risk” in the real estate market and called for prudent lending standards.
The RBA says the increased number of planned apartments is likely to pose a significant problem in several Australian cities.
“An ongoing risk comes from the significant and geographically concentrated growth in supply of new apartments in Sydney, Melbourne and Brisbane due for completion over the next few years,” the RBA said in its latest Financial Stability Review.
“This new supply may weigh on prices and rents in these areas. If that occurs, investors will need to service their mortgages while earning lower rental income, and any households facing difficulties making repayments may not be able to resolve their situation easily by selling the property.
“This is one reason why it remains important to have prudent lending standards ahead of such a possibility.”
The RBA noted that since the previous Review, risks appear to have increased for the developers of these apartments.
“The near-term risks for residential property developers have increased, with a mismatch between a growing supply of geographically concentrated apartments on the east coast and concerns about softening demand for these apartments in some areas (given the rebalancing of jousting demand and strengthened lending standards),” the RBA said.
“With demand for apartments softening in some areas, particularly in Brisbane and Perth, and households facing tighter access to credit, settlement failures might increase.
“A downturn in apartment markets could weaken the financial health of these developers.”
The RBA’s latest Financial Stability Review comes after Starr Partners CEO Douglas Driscoll warned that Sydney’s apartment boom will inflict serious damage on Australia’s housing diversity and is set to divide the future buying population.
“We are forcing buyers into considering apartments because the reality is that they have very little other option in a semi-affordable price range,” he said.
“We are starting to see some ill effects from an oversupply of apartments, such as rents falling for the first time in three years, as well as vacancy rates rising.”
Mr Driscoll said several reports show that this is already happening and it is not the only issue the real estate market is facing.
“There are also huge socioeconomic issues that will arise from this boom,” he said.