Apartment boom leading to rising ‘settlement risk’, warns S&P

Standard & Poor’s has waded into the volatile debate on Australian apartment prices, noting a rising shadow of depreciation.

The ratings agency, in its latest report into the state of the Australian housing market, echoed statements from the Reserve Bank in saying “settlement risk” was on the rise, particularly in two of the nation’s top three markets.

“There is growing concern over the large volume of new unit stock coming to the market, in addition to the already-existing supply, particularly in inner-city postcodes. This is more pronounced in Melbourne and Brisbane,” S&P said. “The increase in supply of units, coming at a time of tightening in lending conditions, could raise settlement risk.”

The S&P report came as building approvals data released yesterday revealed the apartment building boom had yet to fade. The Australian Bureau of Statistics data showing an 8.1 per cent jump in multi-unit dwellings during April.

The Housing Industry Association said apartment approvals were driven by the eastern seaboard states with approvals jumping by 20 per cent in Queensland, 19 per cent in NSW, and 7 per cent in Victoria. South Australia also posted an increase of 3 per cent.

Off-the-plan developments were the primary source of concern for S&P, with the lag between the contract being signed and final settlement potentially seeing some buyers walk away.

S&P said property prices could be affected by the spectre of oversupply along with the tighter lending standards.

“While some of the decline in investment demand has been offset by increased demand from owner-occupiers, we believe falling participation by investors in the property market has affected property price growth to some extent,” the report said.

However, the ratings agency sees little chance of a “sharp correction” in the near-term and believes the market is more immune to an economic downturn than the average, given incentives pushing Australians to pay off their home loans quicker, robust regulatory standards and a strong local culture to pay off debts.

Source: The Australian by Daniel Palmer