Buyers who have recently purchased off-the-plan residential units in Australia are encountering increased challenges as lenders grow more cautious amid declining property prices and an unprecedented number of construction cranes across major cities. Industry experts highlight a rising risk that banks may refuse to settle these purchases due to lower property valuations and tightened mortgage serviceability criteria.

Peter Maloney, chief executive of Herron Todd White, the country’s largest valuation firm, noted that the current housing market downturn combined with rising interest rates is elevating settlement risks. However, he indicated that an ongoing shortage of available housing stock somewhat mitigates the potential for significant valuation drops. “We don’t have enough houses and apartments to cater for demand, so I don’t expect enormous plummets in price between contract and final valuation,” Maloney said.

Despite challenges such as labor shortages and rising construction material costs, construction activity remains robust, underscored by the record number of cranes operating nationwide. Oliver Nichols, research and development director at RLB Oceania, said that construction continues to contribute significantly to the economy through job creation and sustained activity. “The more cranes there are in the skies is a good sign that the industry is active,” he explained.

Nevertheless, concerns persist among economists about the long-term viability of new developments. Nerida Conisbee, chief economist at Ray White, expressed surprise at the high number of cranes given current market conditions and cautioned that valuation risks are growing, particularly for sites acquired during the peak of the COVID-19 pandemic. She attributed the difficulties to escalating construction costs and declining house prices, factors that compress profit margins for developers. “It’s getting worse because construction costs have re-accelerated, and at the same time prices for established homes are falling, reducing the viability of projects,” Conisbee noted.

Data shows that residential projects account for the largest share of new construction activity, representing nearly 58% of cranes nationwide. The data centre sector, alongside mixed-use developments, also experienced growth in crane numbers, reflecting increased investment in technology and infrastructure projects.

Regionally, Sydney experienced a net decrease of ten cranes in residential construction, although it still hosts 37.5% of the country’s total cranes. Melbourne follows with approximately 25% of cranes, maintaining significant activity in its urban development pipeline.

As the construction sector balances between robust development activity and emerging financial risks, buyers, developers, and lenders face a complex environment influenced by shifting market dynamics, cost pressures, and evolving demand patterns.