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Heightened caution around lending is causing a slowdown in loan approvals across the Australian finance sector, adding extra pressure on the country’s beleaguered residential market.

The waiting times for approval for consumer home loans in the country are currently double that of last year.

The delays are adding additional pressure on developers trying to kick off new projects in tough conditions, with slow sales rates ahead of construction making it harder for them to reach the pre-sales criteria of financiers.

New apartment completions nationally will drop by one-third this year to 16,000 from 23,200 in 2018 according to data from JLL.

This has been widely attributed to banks pulling back on new finance following a crackdown on credit quality by the Australian Prudential Regulation Authority.

“You talk to any developer and they will tell you purchasers are taking a lot longer to get their finance,” says Amelia Hodge, chief executive of the Australian Property Institute. “What used to take two-to-three weeks is now taking six-to-eight weeks.”

However, the slowdown is as much a reflection of borrowers’ increasing caution around the market turndown as banks’ tighter lending standards, says John Talbot, Managing Director, Advisory and Consulting Services, JLL Australia.

“I believe the challenges we’re seeing in the residential sector are more market-driven than regulation-driven, with a reduction in demand for both investor loans and occupier loans.

“Certainly, valuers are getting more questions from the banks when they’re assessing valuations in the context of a loan application. They want to better understand risks from a property perspective: postcode risks, asset-specific risk and external issues risk.”

In December 2017, the Australian Government established a royal commission to investigate misconduct in the banking, superannuation and finance sector.

The commission’s recommendations were widely feared to precipitate a credit crunch and a crisis in investor confidence – neither of which has occurred.

Instead, the findings of the royal commission are likely to provide the necessary impetus for the residential markets to rebound in a more stable and transparent way, says Talbot.

“The valuation framework that the industry has been operating in has occasionally been a little ambiguous, but recommendations coming out of the royal commission for more clarity around lending criteria and standards will be beneficial for both banks and borrowers.”

Click to read more about what’s in store for Australia’s property markets in 2019.

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John Talbot

Managing Director, Advisory and Consulting Services, JLL Australia

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