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RBA warns apartment glut a risk to households

Business

The Reserve Bank has singled out a glut of new apartments as a risk to household finances.

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Risks have eased over the past six months, the RBA said in its half-yearly Financial Stability Review on Friday.

But the focus had shifted, from housing lending to commercial loans for residential property development and parts of the commercial property market.

The looming supply of apartments to be completed in Sydney, Melbourne and Brisbane over the coming few years is an ongoing concern.

“This new supply may weigh on prices and rents in these areas,” the RBA said.

“If that occurs, investors will need to service their mortgages while earning lower rental income and any households facing difficulties may not be able to resolve their situation easily by selling the property.”

In the meantime, indicators of resilience for the household sector have improved and measures of financial stress for businesses outside the property sector are low, the RBA said.

In the household sector, investors have become less active and attitudes have adjusted to softer market conditions.

In the business sector, softening demand has increased risks for developers of apartments, while commercial property yields are being squeezed, the central bank said.

Even so, demand for commercial property remained strong, supported in particular by foreign investors.

“However, there is some uncertainty about how these foreign buyers would react to a downturn in their home countries or in the Australian property market.”

Outside the property sector, business finances remained in good shape.

An exception is the resource sector, where falls in commodity prices have reduced the ability of businesses to service their debts, the RBA said.

But, while banks were reporting higher levels of non-performing loans in the sector, their lending to this part of the market was only a small share of their total lending.

None of these risks seemed to be enough on its own to seriously affect the domestic financial system, but they could exacerbate a major shock from abroad, the RBA said.

AAP

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