RBA fears off the plan apartment non-settlement jitters especially in Melbourne and Brisbane

The Reserve Bank has noted there is a danger that apartment buyers will default on off the plan purchases because of falling ­prices along with the difficulty of obtaining ­finance.

“These risks appear greatest in inner-city Brisbane and Melbourne, where the new supply is largest relative to the existing dwelling stock,” the Reserve Bank said in its latest review of the ­stability of the Australian financial system, released on Friday.

The RBA said the chance of developer sales falling through had been ­increased by new bank restrictions.

These included the restrictions on lending to buyers with foreign incomes, aimed mainly at Chinese investors, and also the more rigorous requirements now being ­imposed by the local banks on mortgage borrowers generally.

“There are signs that some settlements are taking longer and lending valuations are coming in below their contract price, though settlement failures to date remain low,” the bank noted.

The Reserve Bank’s concerns were shared by the banking regulator, the Australian Prudential Regulation Authority.

But APRA's chairman Wayne Byers told a parliamentary committee on Friday that the biggest lending exposures to the east coast apartment boom were taken on by Asian banks, rather than by the big four Australian banks.

The Reserve Bank estimated that 16,000 new apartments in Melbourne over the next two years would add around 18 per cent to the city’s stock of inner-city housing, while an additional 12,000 in Brisbane would add 15 per cent to exisiting stock levels.

Sydney's increase is only around six per cent and the 10,000 new ­apartments scheduled for completion over the next two years spread across the city.

The RBA noted apartment ­prices and rents were weaker in Melbourne and Brisbane, while vacancies were higher.

“If apartment markets were to turn down and settlement difficulties become more widespread, banks would be more likely to incur some loan losses,” the ­bank said.

It said housing default rates in Australia had historically been very low, about 0.5 per cent, with home buyers having a high level of collateral.

The Reserve Bank noted that during the post 2008 global financial crisis, house prices fell by between 30 and 50 per cent in the most affected nations.

“However, Australia is not facing the same economic and financial headwinds as Spain or Ireland did during the financial crisis,” it added.