Australia's housing boom has passed its peak, with a looming apartment glut set to trigger a sharp slowdown in future property developments, according to Morgan Stanley.
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The slowdown in construction will hurt economic growth, put 200,000 jobs at risk and prompt the RBA to resume cutting interest rates next year, Morgan Stanley analysts led by Daniel Blake said in a research note.
"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."
Downturn to force RBA's hand
Shares of developer Lendlease slumped as much as 5.5 per cent on 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 raft of apartment projects is completed, particularly in Sydney and Melbourne. Multi-dwelling approvals will slow by about 46 per cent 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 per cent, Morgan Stanley predicts. That will force the RBA to resume cutting interest rates in the second half of next year, lowering the benchmark rate 50 basis points to a record low 1 per cent.
A report published today showed employment fell by 9800 in September from August, led by the biggest plunge in full-time jobs in five years. The jobless rate fell to 5.6 per cent from 5.7 per cent.
QBE Insurance warned earlier this month that Sydney's housing boom was coming to an end, as restrictions on investor lending and a raft of new developments combine to hurt prices.
Bloomberg
