Australia Housing Boom Peak Has Passed, Morgan Stanley SaysBy
Nation faces housing oversupply of 100,000 dwellings by 2018
Lendlease shares fall after builder flags apartment slowdown
Australia’s housing boom has passed its peak, with a looming apartment glut set to lead to a sharp slowdown in future developments, according to Morgan Stanley.
The slowdown in construction will hurt economic growth, put 200,000 jobs at risk and prompt the central bank to resume cutting interest rates next year, Morgan Stanley analysts led by Daniel Blake said in a note dated Oct. 19.
“We believe the growth contribution from the housing boom has already peaked and look for a plateau over 2017 and decline through 2018,” the analysts said.
The housing industry is also facing a “more imminent credit crunch” for purchases and developments, they said.
“The greatest vulnerability is settlement risk on the 160,000 apartments we forecast being completed through the end of 2017,” they said in the report. “Listed developers report low failure rates currently, but also confirm credit availability has tightened, especially for foreign investors. Non-bank credit is moving to plug the gap at higher interest rates, but we expect some projects will land with the receiver.”
Shares of developer Lendlease Group slumped as much as 5.5 percent in Sydney trading Thursday after the company flagged a slowdown in building activity, saying Sydney apartment activity is peaking and the Melbourne apartment sector is facing a high level of supply.
In May, all 391 apartments offered by Lendlease at a project in Sydney were snapped up in just four hours.
A national housing oversupply of about 100,000 dwellings will develop by 2018, Morgan Stanley said, as a glut of apartment projects are completed, particularly in Sydney and Melbourne. Multi-dwelling approvals will slow by about 46 percent levels to an annual pace of 67,000 by the fourth quarter of next year, and decline further to 57,000 by the end of 2018, they said.
The housing slowdown, combined with a decline in mining investment, will ripple through the economy, putting 200,000 jobs at risk and pushing the unemployment rate up to 6.5 percent, Morgan Stanley said. That will prompt the central bank to resume cutting interest rates in the second half of next year, lowering the benchmark rate 50 basis points to a record low 1 percent.
A report today showed employment in Australia fell by 9,800 in September from August, led by the biggest plunge in full time jobs in five years. The jobless rate fell to 5.6 percent from 5.7 percent.
QBE Insurance Group Ltd. this month said Sydney’s housing boom is coming to an end, as curbs on investor lending and a raft of new developments combine to depress prices.