The number of new home construction in Australia is expected to slump for the fifth time consecutively amid falling demand and high interest rate.
According to the Housing Industry Association, the number of under-construction houses in Australia is forecasted to slump for fifth year in a row that will increase disparity between available homes and demand, and reduce the number of rental properties, as reported by BusinessDay.
It is expected that the construction of new houses will drop 6% to about 145,300 in 2008-09 from 154,200 in the previous fiscal. Apparently, the underlying demand for new homes this year is 191,800 Units higher than 188,300 Units last year. Moreover, the affordability of homes spurt 0.4 points to 105.3 in Q2 2008 from the lowest level of 104.9 since the starting of series in 1984. In Sydney, the city with highest home prices in the country, the home prices index fell 8.4% to 87.8 points in Q2 2008.
The main reason for decline in the Australian home building industry is continuous decrease in the demand of new homes. Besides, home-loan approvals have gone down in recent months, leading to downfall in demand for homes in the country. Also, the global credit crunch along with high interest rates has made mortgage payments extremely difficult as the central bank hiked the benchmark interest rate 1% last year.
Moreover, the statutory costs to building and extremely heavy local, state and federal taxes on building new homes are resulting in low investments from home aspirants. Home buyers have also been struggling against surging building material costs that put them on back foot in the real estate market, making construction of new homes less attractive for real estate developers.
In view of low housing affordability in Australia, it is believed that home prices will drop eventually. The median monthly mortgage payments will not remain stable at the current level in coming months. In addition, home developers will have to reduce the prices to attract buyers towards housing market and to scale up the sales.
According to a Research Analyst at RNCOS, “The Australian housing industry is expected to see drop in new home construction owing to low demand and high interest rate. This is not only affecting home developers but also the country’s economy. Nevertheless, the new home prices are anticipated to drop, which will boost the demand in the country.”
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