RBA FSR: Sharp Property Price Fall Would Present Significant Risks
- Published on
- 09 Apr 2020, 12:42 PM
Australian households and businesses are mostly well placed to face the large contraction in economic activity associated with the COVID-19 pandemic although it will test their financial resilience, the Reserve Bank of Australia said in its twice-yearly publication Financial Stability Review published Thursday.
Below are the highlights from the Review:
1. The RBA noted there might be very little turnover in the housing market but it remains unclear how this will affect residential property prices. But if property prices fell sharply, it would present significant balance sheet risks for households, businesses and lenders
2. Banks have around A$30 billion of bonds maturing in June quarter and another A$50 billion in second half but the RBA's Term funding facility would be enough to provide them with funds to replace all maturing bonds in the next six months, if markets remain dysfunctional
3. A key risk in commercial property is developers with projects under construction but unsold properties. For them, it could be difficult to finalise sales at a profitable price, thus leaving them holding inventory and debt, with little or no revenue. This is a key risk for lenders -- both banks and non-banks.
4. Decline in rent and increase in vacancy for commercial property is likely. The RBA noted that an above-average volume of office supply is due to be delivered into the Sydney and Melbourne CBD markets this year and demand will be unlikely to keep pace with this stronger supply.
5. Monetary policy cannot address the driver of the economic contraction. Rather it can only serve as a bridge, while substantial fiscal stimulus is being implemented to offset the economic contraction
6. Based on APRA's reverse stress tests, Australian banks would only breach their prudential minimums if a severe downturn lasts for at least 12 months, with the unemployment rate rising by more than 10 percentage points.
--Contact: sophia@centralbankintel.com