A significant increase in building approvals in November 2017 corresponding with a fall in housing prices is raising concerns that the Australian property market is headed towards a crash.
New data on building approvals released recently reveals that approvals in November were up 0.9 percent compared to October, and 8.1 percent higher than November 2016. Most of these approvals are for apartment projects, which are already at high levels.
Though developers may not have known for sure about the downturn, they may have sensed it; this may have driven the rise in building approvals.
Delayed projects face the risk of being sold at a loss in a crashing market. The loss will be greater for developers who are forced to abandon their projects. Though bigger developers can afford to finish their properties and wait for the market to pick up again before selling, this will be risky as market recovery can take a very long time.
Interestingly, the rise in building approvals was restricted to the Victorian property market. While the average number of building approvals in New South Wales, Queensland and South Australia fell 2-3 percent from the previous month, Victoria’s numbers increased by 27 percent.
Victoria also saw a 0.5 percent growth in prices.
Expectedly, a few developers are already sitting out this round till the market recovery happens. While the rise in building approvals in November indicates that the shrinking pipeline of new building might get a boost, there’s always the possibility that builders may not even use their approvals now.
However, the more important issue is the potential impact of a housing market crash on the wider Australian economy.