News

Property developers warn RBA to stop talking down apartment market

19 April 2016

Property developers have issued a warning to the RBA that if they keep talking up apartment oversupply fears, it will cause more banks to withdraw lending to buyers and might actually cause an apartment price collapse.

Some economists, including those at the Reserve Bank, have been warning of an apartment glut, particularly in Sydney and Melbourne, while others are dismissing the warnings as fearmongering.

A Sydney developer who did not want to be named spoke to The Australian Financial Review today about the RBA’s recent Financial Stability Review and how her clients were being turned away by banks despite having pre-approval and solid borrowing credentials.

“The Reserve Bank and the banks are overly cautious about the market,” she said.

“They are going to perpetuate the glut problem.”

The anonymous developer told the Financial Review that banks were reining in lending and were also stepping up limits on foreign investment, which was still strong.

“It doesn’t make sense. The Government and economists talk about growing population to fuel demand. But that demand is made up of migrant families and business migrants who need homes,” she said.

“Of course they don’t have much credit history in Australia.”

The developer said banks did need to show caution with lending in the current climate, but they have already adequately done this by reducing loan valuation ratios to 70-80 per cent.

Visionary Investment Group’s Michael Guo said continued population growth in cities like Sydney and Melbourne would alleviate the RBA’s concerns.

“Some parts of the Australian property market are overcooked and things have slowed down since the end of 2015,” he told Australian Financial Review.

“However, it does not necessarily mean a market crash is going to happen.”

“Market downturn is seen in many cities, but not at every level or in all areas. Suburbs that are affordable, well located and with unique investment highlights are expected to perform well.”

The apartment market in Melbourne is certainly looking to be in oversupply currently with recent figures showing prices down around 30 per cent on some apartments compared to their original purchase price.

Despite this, vacancy rates are still relatively low at less than 2 per cent, muddying the waters in terms of whether Melbourne needs more or less apartments.

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