Bank of Queensland chairman Roger Davis has highlighted the risks from a looming surge in apartment settlements in Brisbane and Melbourne amid signs more buyers are facing difficulties completing off-the-plan purchases.
Mr Davis told shareholders at the bank's annual general meeting on Wednesday the lender was "naturally cautious" on residential property, pointing to settlement risk and high prices in east coast cities.
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While arguing there was not an economy-wide housing bubble, he stressed that property prices in key areas were "high," and a coming risk was the high number of off-the-plan apartments due to be settled in Brisbane and Melbourne, especially.
These two cities have the largest number of units to be completed over the next years, according to estimates from the Reserve Bank.
![Bank of Queensland chair Roger Davis (left) and chief executive Jon Sutton.](/web/20161130150009im_/http://www.theage.com.au/content/dam/images/g/t/0/m/o/f/image.related.articleLeadwide.620x349.gt0kaw.png/1480482374060.jpg)
However, banks are reporting a growing number of buyers are struggling to settle on time because they are unable to obtain finance from their bank. Some bank valuations of properties are also below what buyers have agreed to pay in their contracts, the RBA said last month.
"Arguably a looming 'settlement bulge' in Melbourne and closer to home, in Brisbane, is creating an identifiable stress point in the economy which needs to be closely monitored," Mr Davis told the meeting, in Brisbane.
Building approvals plunge
His comments came on the day that new ABS figures suggested the boom in high-rise construction was slowing down, with the number of approvals for high-rise units falling about 40 per cent last month to a two-year low.
Overall, total building approvals fell 13 per cent in October, the Bureau of Statistics said, bucking market expectations for a 1.5 per cent rise.
The warning from Mr Davis echoes commentary from the Reserve Bank, which predicts that over the next two years builders will complete 16,000 new units in Melbourne, 12,000 in Brisbane, and 10,000 in Sydney.
Responding to the growing signs of weakness in some apartment markets, Treasurer Scott Morrison last week sought to prevent the market being flooded with apartments where foreign buyers had failed to settle on the purchase.
The changes will allow foreigners who fail to settle on an apartment to sell to other foreigners, rather than being forced to sell them to domestic buyers as previously.
'Fully priced'
On the long-debated housing bubble question, Mr Davis said it was "clearly not accurate" to say there was a bubble across the country because conditions were weak in many areas, with Perth property prices falling.
Even so, there were parts of the country, especially on the east coast, that appeared "fully priced," due to limited supply of properties and record low interest rates.
"Given these environmental conditions, we naturally remain cautious about the domestic housing market, but take comfort from several mitigating factors in managing our exposure especially our strong risk culture and conservative risk settings," Mr Davis said.
Mr Davis said 2016 had been a "challenging" year, with negative returns for shareholders during the previous 12 months, and future growth prospects were "subdued."
The weakness reflected softer economic conditions, and a crunch on profit margins from stiff competition and low interest rates.
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