Apartment approvals slump as investors stay cautious about falling prices

The number of new apartment approvals has fallen sharply as investors struggle to get bank loans and remain cautious about falling dwelling prices.

The amount of apartments approved dropped 49 per cent in the December quarter 2018, compared to the same period a year earlier, official figures on Monday showed.

It comes as banks have clamped down on lending to investors, under pressure from the regulator and the financial services royal commission.

Commonwealth Bank senior economist Gareth Aird noted “solid falls” across the eastern seaboard, with total residential approvals down 23.4 per cent in Victoria over the year to December and 21.2 per cent in NSW.

Although the figures can be volatile, the trend was clear, he said, adding apartment approvals had “stepped off a cliff”.

“While that will provide some support to dwelling prices via weaker growth in supply and tighter vacancy rates, it will ultimately weigh on employment and economic activity,” he said.

In Melbourne, CBRE’s managing director for residential projects Andrew Leoncelli said despite a strong economy and growing population, buyers struggled to get loans.

“We’re probably in our most difficult period for sales in the last 10 years,” he said.

“The international developers that were buying all the city blocks to do very high density apartment development, they’re out of the market.”

Owner-occupier-focused suburban apartment developments were selling better but only in small numbers, he said.

“We will be 75 per cent down on the total number of apartments sold in 2019, as compared to 2015, so it’s a major reduction in volume.”

Although apartment approvals stayed relatively high during 2018 the pace of decline accelerated in the final months of the year, with builders and developers initiating fewer new projects, Master Builders Australia chief economist Shane Garrett said.

“It’s hard to persuade people to buy in a situation where prices are going down,” Mr Garrett said.

“When demand gets back onto its feet, you have too few homes being built.”

HIA senior economist Geordan Murray said the unit market was slipping back from record high levels as falling house prices deterred prospective buyers.

“Developers would need to get a level of presales in order to get a project up and running,” he said.

“In the absence of those presales, projects don’t proceed.”

The pipeline of construction work is relatively strong at the moment but as projects reach completion, fewer projects will come online, he said.

The apartment market has been in focus with a high-rise tower in the Melbourne CBD bursting into flames early Monday morning and the Metropolitan Fire Brigade warning the block was clad in the same kind of aluminium composite materials as London’s Grenfell Tower that saw a deadly blaze in 2017.

In Sydney residents of the Opal Tower were forced out of their homes before Christmas when cracks appeared in the building.