When the federal and state governments imposed restrictions in March in the efforts to contain the coronavirus outbreak, many market watchers were quick to forecast a sharp fall in building approvals. This, however, was not the case, according to the latest figures from the Australian Bureau of Statistics (ABS).

Residential building approvals declined in April by 1.8% on a seasonally-adjusted basis, defying the double-digit drop predicted by market watchers. In trend terms, approvals increased by 1%, driven by both houses and units.

"These results are consistent with leading indicators in early 2020, prior to the onset of the COVID-19 pandemic restrictions. Building approvals typically lag early indicators of housing demand, such as new home sales and new loan commitments," said Daniel Rossi, director of construction statistics at the ABS.

Also read: Negative Equity Unlikely Despite Price Drops

While all major states recorded approval gains in both houses and units, New South Wales dragged Australia’s overall growth, said Maree Kilroy, economist at BIX Oxford Economics.

“A sizable correction in new high-density approvals in New South Wales forced national attached dwelling into the negative,” she said.

She said the growth in approvals, particularly of houses, was likely a continuation of building applications from early March gaining approval and not representative of new demand in April.

"Dwelling approvals are expected to deteriorate over the coming months with all demand channels adversely impacted by the COVID-19 shock," she said.

The expected decline in approvals in the coming months would likely be due to the weaker off-the-plan apartment and greenfield land sales.

"The federal government has indicated that targeted stimulus for new dwellings is on the way, but it likely won't show through in the approval data for at least a few quarters," she said.

Adelaide Timbrell, economist at ANZ, said approvals have yet to feel the impacts of the COVID-19 outbreak.

"Our housing report from May shows that the population and employment impacts of COVID-19 are likely to reduce demand for new housing, particularly by investors," she said in a report in AAP.