Shayne Elliott, CEO of Australia's third-largest bank by market value, told Reuters in an interview the bank had gone "quiet" in funding new developments in Melbourne's central business district and that there had been overbuilding in Brisbane.
"The second thing is to actually provide mortgages for people who are going to buy those apartments... again we haven’t really been aggressive in that sector," he said.
Approvals to build new Australian homes sank a shocking 12.6 percent in October from a month earlier, confounding forecasts of a 1.5 percent rise and marking the biggest drop since mid-2012.
Asked about overall market conditions, Elliott said: "It doesn't mean it's a calamity or a disaster but it does mean we should be cautious."
He said it wasn't clear if a potential decline in values for small inner-city units being built in Sydney, Melbourne and Brisbane and often favored by foreign buyers would have a contagion effect on other sections of the market.
ANZ could cope with property price falls of up to 40 percent and a near-doubling of unemployment - the worst case scenario it runs as part of its stress-testing.
"It doesn't mean profitability would stay but in terms of soundness and survival, capital ratios, the ability to lend look okay," he said, adding that ANZ's mortgage portfolio had an average loan-to-value ratio of 52 percent.
Elliott also said he was concerned that wage growth in Australia had stagnated, with household income falling in some parts of the country.
At a Reuters Newsmaker event earlier in the day, he cited the example of a Western Australian worker who was paid A$200,000 ($149,500) a year during the resources boom but had his wages cut to A$80,000 after the rout in commodity prices.
Elliott said that sort of experience, along with a trend towards more part-time work, had led ANZ to be increasingly cautious about lending.