Approvals data shows bleak outlook for apartment developers

Apartment developers across the country are facing their toughest market in nearly a decade, with approvals plunging due to the COVID-19 crisis and little respite on offer in the form of state and federal government stimulus.

The Australian Bureau of Statistics this week released the first set of figures that illustrate the impact of COVID-19 restrictions on the construction sector, with a significant contraction in building approvals in May recorded in all states.

The ABS said building approvals plunged by 16.4 per cent in May across Australia, with the heaviest decline of 23.3 per cent experienced in Tasmania.

Victorian approvals were down 14.3 per cent, New South Wales fell 11.3 per cent and South Australian approvals slipped by 9.3 per cent.

Approvals in WA fell by 8.9 per cent, while Queensland was the best performer with a 7.4 per cent fall.

Housing Industry Association economist Angela Lillicrap said the data was the first set of figures that reflected the impact of COVID-19 on housing constriction.

“The decline in approvals in May is only the start of the COVID-19 shock in home building. We anticipate building approvals data will continue to decline for a number of months, due to the lag in the approvals process. 

“The economic uncertainty in the months prior to May are a significant factor leading to the decline in approvals in May.

“HIA new home sales in the preceding months fell dramatically.

“In addition, slower processing times due to staffing constraints within councils may also have played a role. 

“This decline in approvals would typically impact work on the ground in the second half of the year.”

Ms Lillicrap said government stimulus packages such as HomeBuilder would assist in minimising the adverse impacts of the coronavirus crisis, but that would not be reflected in ABS data for several months.

The reduction in approvals was particularly felt in the apartments sector, with detached housing approvals down just 4.1 per cent in the month.

Across Australia, multi-unit approvals plunged by 34.5 per cent to an eight-year low.

“This sector faces very difficult market conditions due to the decline in student numbers and halt in migration,” Ms Lillicrap said.

“In addition, HomeBuilder is unlikely to have a significant impact on this part of the market.”