Loading

"This latest data confirms that tightening credit availability and falling house prices are battering confidence in the residential sector," said Robert Mellor, managing director of BIS Oxford Economics.

"With the final recommendations of the banking royal commission released today, the scales are tipping more towards added downside risk to the residential downturn."

Futures markets imply around a 50:50 chance the RBA will have to cut the 1.5 per cent cash rate by the end of the year, despite its repeated assertions that the next move would be up.

Figures from the Australian Bureau of Statistics showed approvals to build new homes plunged 8.4 per cent in December, which follows a 9.8 per cent dive in November.

Loading

Total approvals of 13,995 were down almost 23 per cent from a year earlier and the lowest since mid-2013.

Most of the damage came in the apartment sector, which has enjoyed boom conditions in recent years, but is now the epicentre of a tightening in lending finance.

Approvals for apartments and townhouses shrank to just 4752 in December, the smallest number since mid-2012 and a fall of 38 per cent from the same month a year earlier.

The weaker data comes ahead of the release this Thursday of half-year results for listed apartment owner Mirvac.

Last week, a report by investment house UBS said Mirvac, Lendlease and Stockland were at ''most risk'' of falling apartment settlements.

''We see a substantial amount of risk for Mirvac settlements in the financial year 2020-21 in projects which were released late in the cycle in 2017 as pricing peaked," the UBS report says.

Loading

''The most at-risk projects are in Sydney's Marrickville and Sydney Olympic Park ... which appear already out of the money with the Sydney apartment price index down 5 per cent since launch.

''St Leonards could also become an issue were apartment prices to fall a further 5-10 per cent.''

The UBS report says in Victoria, cancellations have been in the ''low single digits'' but recent data indicates this is increasing by about 5 per cent.

''We expect Stockand's first-half settlements to disappoint as cancellation rates increase and settlement times extend,'' the report says.

Stuart Penklis, head of residential at Mirvac, said the company was monitoring the changing residential market conditions closely. It was important to remember that "average" price changes masked significant differentiation between sub-markets and housing type.

Headwinds for Chinese developers

According to a new report from real estate agency Knight Frank Australia, 31 per cent, or $1.3 billion worth, of Australian development sites were bought by Chinese developers in 2018, down from $2.02 billion in 2017.

Knight Frank’s head of residential research, Australia, Michelle Ciesielski, said there was no denying Chinese developers had met with challenges throughout this time.

''With current headwinds heading into 2019, the likelihood of all projects proposed by Chinese developers going ahead over the next couple of years is diminishing, except those with an exceptional product,'' Ms Ciesielski said.

''Projects submitted for development approval and those already with approval, but not yet having started marketing campaigns, tend to taper off substantially for Chinese developers – with less than 6 per cent of total projects in the pipeline.''

HIA principal economist Tim Reardon said the slowdown in approvals would flow through to a slowdown in building activity on the ground later this year.

''We’ve long been anticipating the current downturn in new home building, but there is a risk it could develop more quickly and strongly than expected,'' Mr Reardon said.

Master Builders Australia’s chief economist, Shane Garrett, said more worrying was the pace at which approvals had been falling over more recent months.

''During the final three months of 2018, total approvals were 23.7 per cent lower than a year earlier – with apartment approvals suffering a 40.1 per cent reduction over this period,'' Mr Garrett said.

''Faltering new home building activity has been occurring against the backdrop of falling house prices, the royal commission’s work and uncertainty about what housing policy will look like after May’s federal election.''

''While approvals can be volatile, especially over the turn of the year, the slowing trend augured ill for growth given home building had many spillovers to the broader economy from jobs to furnishings.''

Job ads fall

A separate survey from Australia and New Zealand Banking Group out on Monday showed job advertisements in newspapers and on the internet fell 1.7 per cent in January, taking annual growth into negative territory for the first time since 2015.

"The decline in job ads is consistent with a range of other data suggesting the economy lost momentum in the second half of 2018," ANZ's Head of Australian economics, David Plank, said.

"It is not surprising that this loss of momentum is translating into weaker job ads. This should show up in actual hiring in due course, though employment does lag other parts of the economy."

Australia's labour market has been the star sector of the economy, with the unemployment rate hitting a 6½-year trough of 5 per cent in December.

with Reuters