Australian building approvals unexpectedly drop 0.6%

SYDNEY: Australian home-building approvals unexpectedly fell in October for the first time in five months after the government reduced grants to first-time buyers and the central bank raised interest rates.

The number of permits granted to build or renovate houses and apartments dropped 0.6% from September, when they rose a revised 5.1%, the Bureau of Statistics said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg was for a 2% gain.

Approvals may fall further in coming months if central bank Governor Glenn Stevens raises interest rates today for a third straight month. Payments from Prime Minister Kevin Rudd’s government to first-time buyers of newly build dwellings were reduced in October to A$14,000 (RM75,600) from A$21,000.

“We’ll see some weakness in approvals over the next few months,” said Helen Kevans, an economist at JPMorgan Chase & Co in Sydney. “Not only is the Reserve Bank tightening policy, but lending standards are tighter and that will weigh on approvals going forward.”

The Australian dollar fell to 91.58 US cents at 11:57am in Sydney from 91.66 cents just before the report was released. The two-year government bond yield rose 1 basis point to 4.35%. A basis point is 0.01 percentage point.

Building approvals rose 11.7% in October from a year earlier. Economists tipped a 9.6% gain.

Rate bets

Nineteen of 20 economists surveyed by Bloomberg expect Stevens will raise the overnight cash rate by a quarter point to 3.75% at 2:30pm today in Sydney, adding to similar increases in October and November.

Investors are betting there is a 76% chance Stevens will increase the key rate by a quarter point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:51am.

House prices jumped 8.4% in the six months through Sept 30, according to a government report. Prices gained another 1.4% in October, real-estate monitoring company RP Data-Rismark said yesterday.

Australians have a larger capacity to sustain higher house prices when compared with incomes than households in countries such as the US, central bank Deputy Governor Ric Battellino said last week.

“Australians seem to spend less of their income on non- housing consumption than is the case for US households, with a significant part of this difference explained by lower health costs,” Battellino told a conference in Melbourne. They “therefore have greater capacity to service housing loans.”

Approvals to build private houses rose 5% to 9,642 in October. Approvals for apartments and renovations slipped 19.3% to 2,512. -- Bloomberg