Confidence in Australian property still remains high despite talk of a housing bubble and tighter lending conditions.
ANZ’s survey of Property Council members for the June quarter showed that respondents in the sector are staying bullish in the face of some headwinds. Sentiment remains high in NSW, and the latest data reveals a surprising boost in confidence for the WA market. See here:
ANZ chief economist David Plank noted that renewed confidence in the sector was “of particular interest” in the latest survey.
“Expectations of price growth continue to rise, and the outlook for construction activity and staffing requirements have also picked up,” he said.
The prevailing sentiment pushed the confidence index to its highest level since December 2014. Clearly property companies remain bullish about their own sector, despite concerns about systemic risks in the housing market from market commentators and regulators alike:
Those concerns have given rise to a recent tightening in lending standards. The Australian Prudential Regulation Authority (APRA) has imposed a limit on interest-only loans, and banks have raised out-of-cycle rates on some investor loans.
Interestingly, the latest survey shows that firms across all states now also expect interest rates to rise over the next 12 months. This chart shows that property companies’ expectations for an interest rate increase have steadily increased since September last year.
The prevailing view in the property sector is somewhat at odds with the latest RBA minutes, which suggest a more dovish interest rate policy in the near term.
ANZ notes that “although we do not expect to see the RBA move rates within the next year, it appears increasingly likely that recent lows in bank lending rates will not be seen again”.
The bank cited continued demand as a key driver of house prices. “Auction results remain elevated and paint a positive picture of demand for housing. As a result, 49% of firms surveyed expect house prices will continue to rise over the next 12 months – up from 42% last quarter and 35% a year ago.”
The survey also showed a broad decrease in foreign investment, particularly for residential construction.
Amid concerns that Chinese buyers have been buying up 25% of new properties in NSW, ANZ’s latest data showed a 3% decrease nationally in sales of residential property to foreign investors:
Sentiment in commercial property is also positive, with 58% of respondents expecting their workbook to increase over the next 12 months. As is common in the survey, responses differed significantly across industries.
Construction for tourism and tourist accommodation remained the strongest sector, with strong tourist inflows from Asia.
“Importantly, this driver of growth is spread across most of the country with the forward work schedule and construction activity looking strong across all major states and territories, including the previously weak Western Australia,” ANZ said.
Industrial production received a boost in NSW from multiple infrastructure investments underway, and that’s supporting demand for industrial property. However, confidence in the retail sector remains weak.
ANZ cited low margins and threats from “the continuing trend of large global retailers setting up shop in Australia” (hint: Amazon) as the main factors weighing on retail sentiment.
With growth expectations varying across different commercial sectors, ANZ’s latest survey showed that expectations for capital growth still grew most significantly for residential property: