Settlement risk on off-the-plan purchases may have increased as a direct result of APRA-instigated lending changes, according to the Financial Stability Review.
The RBA highlighted the inner-city Brisbane and Melbourne markets as the most susceptible to settlement risk, due to high levels of apartment building activity in each city.
Although investor demand in those cities appears strong at present, “apartment markets in these areas already look soft, and future tenant demand, including from international students, is uncertain”, according to the RBA.
The RBA highlighted that risks in residential property development and other commercial property markets continue to build, noting that this area of their lending has been a key source of bank loan losses in the past.
“Risks to residential property developers appear to have increased over the past six months,” the review read.
“The large volume of apartment construction currently underway and planned has continued to grow, and the price of development sites has increased rapidly due to strong developer demand.”
The central bank highlighted that recent international student net arrivals were less than the Department of Immigration and Border Protection’s forecasts, and the department’s forecasts for coming years have been revised down significantly.
“More generally, population growth has slowed noticeably of late,” it said. “Any downturn in apartment market conditions would weigh directly on the developers’ equity in projects underway, and would increase the risk of off-the-plan sales falling through."
The RBA said a number of banks have already responded to the risk of oversupply by tightening lending standards to apartment developers in the more “at-risk” areas.