Construction sector weakens as financing eases

By Gerv Tacadena

The subdued construction environment in Australia continued in April as lending for new home-building fell.

The subdued construction environment in Australia continued in April as lending for new home-building fell, official figures show.

The number of loans to owner-occupiers for the construction of new dwellings fell by 5.2% in April, according to the latest industry report by the Australian Bureau of Statistics.

Housing Industry Association (HIA) senior economist Geordan Murray said the moderation in home-building financing might be due to several factors, including the succession of holidays around Easter and ANZAC Day, as well as the uncertainties brought about by the federal election.

"Softer lending in the segment is consistent with the drop in new detached house sales in the major east coast markets over recent months," he said.

During the same month, building approvals fell by 0.6%. In a previous Your Mortgage report, HIA chief economist Tim Reardon said the decline was due to the low levels of consumer confidence before the election.

"However, the end of the election alone will not be sufficient to bring stability back into the housing market," he said, "An easing of the credit squeeze is necessary to alleviate the adverse impact of the housing downturn on the wider economy."

Murray believes the demand for construction financing would likely see a rebound due to recent market events.

"There has been a marked improvement in housing market sentiment in the weeks following the federal election. When combined with the RBA's rate cut and the prospect that APRA may allow lenders a greater degree of flexibility in assessing loan serviceability, there is cause to be optimistic that lending activity could improve as the year progresses," Murray said.

When it comes to the number of loans to owner-occupiers purchasing new homes, the moderation was not apparent. The segment registered a higher turnout, rising 1.1%. The overall value of lending commitments to households reversed the 3.3% drop in March, recording a 0.6% growth in April.

"The number of loans to owner-occupiers purchasing new homes that have already been built posted a modest lift in the month. This lift is likely to reflect the settlement of multi-unit dwellings purchased off the plan as these projects reach completion," Murray said.

In an analysis, ABS chief economist Bruce Hockman said the stronger lending for owner-occupier dwellings in April was driven by a 2.2% rise in New South Wales and a 1.3% rise in South Australia.

"The steep decline in owner-occupier lending commitments seen since late 2017 appears to be slowing, with lending for owner occupier dwellings recording the smallest monthly fall in trend terms since April 2018," he said.

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