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Australia's building activity slows in April, a bad omen for economy

Dwelling approvals down 5 per cent, suggesting four-year-old boom is running out of steam

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Sydney Harbour Bridge and the residential properties lining the Sydney suburb of Birchgrove. Home prices across Australia's major cities have been easing for successive months since late 2017.

Sydney

AUSTRALIA'S housing activity slowed in April with approvals to build new homes down more than expected while non-residential permits also slipped in an ominous sign for broader economic growth.

Dwelling approvals skidded 5 per cent in April, data from the Australian Bureau of Statistics showed on Wednesday, when analysts had expected a fall of 3 per cent.

Approvals were still up about 2 per cent annually but far from the stellar double-digit increases seen last year.

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Australia's four-year-old boom in home building has supported the country's A$1.8 trillion (S$1.81 trillion) economy as it transitioned away from a once-in-a-generation mining boom, but Wednesday's data suggested the rally was running out of steam.

Home prices across Australia's major cities have been easing for successive months since late 2017 on tighter lending standards at banks.

Diana Mousina, an economist at Australian finance company AMP, expects prices in the two biggest cities - Sydney and Melbourne - to ease another 5 per cent or so this year, with further declines likely next year. That will have ramifications for the economy.

"Over the past few years, the strong gains in home prices have allowed households to draw down on savings, which has been positive for consumption," she said.

"Looking ahead, the savings ratio is unlikely to move significantly lower, which is a constraint for consumer spending," she added. "A weakening consumer is a large downside risk for the Australian economy."

First quarter gross domestic product data is due on June 6. The economy grew an annual 2.4 per cent in 2017, below the trend rate of 2.75 per cent.

Analysts at Swiss investment bank UBS downgraded their house price forecast on Wednesday, expecting values to drop by 5 per cent or more over the next year from their long-held view of flat to a 3 per cent fall.

The dour outlook means the Reserve Bank of Australia (RBA) will likely keep rates at a record low of 1.5 per cent for a long time to come.

"We continue to expect the RBA will hold until at least the second half of next year, but given the downside risks to our housing and consumer outlook, the RBA could remain on hold for even longer," George Tharenou at UBS said in a note.

"Separately, the surprisingly weaker trend in non-residential building approvals is important to highlight, as if it is sustained, it could suggest momentum for business investment is rolling over."

Approvals for commercial properties such as offices slipped for a second straight month in April to be down 4 per cent. On an annual basis, it slumped nearly 20 per cent.

Non-residential building approvals have stumbled in nine of the past 12 months.

"The recent downturn in approvals is challenging our outlook for ongoing strength in non-residential activity into 2019," ANZ economists said. REUTERS