Optimism on the outlook for Australia’s property market remains high despite expectations for higher interest rates, at least among those who work in the industry.
The latest ANZ-Australian Property Council quarterly survey released on Thursday revealed overall confidence levels jumped to 131.2 in the March quarter, leaving it at the highest level seen since the March quarter of 2015.
The survey captures responses of around 1,500 professionals working in the sector.
At 131.2, it indicates that a net 31.2% of respondents expect conditions in the property market to improve over the next 12 months.
Unsurprisingly, particularly after another year of incredibly strong price growth, sentiment towards the residential property sector recorded the largest lift during the quarter, led by responses from New South Wales, Victoria and Queensland, those states who saw the fastest price growth in 2016.
“Much of the improved outlook for the property market came from the residential segment, supported by improved expectations of capital price growth, forward work schedules, and construction activity,” said Richard Yetsenga, chief economist at ANZ.
“House prices have returned to double-digit annual growth rates across Sydney and Melbourne, while auction clearance rates have steadily increased and now sit only a fraction lower than last year’s peak. Coupled with the returning presence of investors, it appears that demand for housing is reasonably steady at an elevated level.”
Sentiment may also have been helped by a signs of stabilisation in the number of properties being sold to foreign investors which increased to 20.9% nationally over the past three months, up from 20.5% in the December quarter survey.
Victoria, New South Wales and Queensland recorded the greatest proportion of property sales to foreign investors at 25.2%, 23.6% and 20.4% respectively.
Again, those states with the fastest residential property price growth in 2016, and home to the highest levels of sentiment in the survey.
Of particular interest given that news, especially at a time when housing affordability concerns are elevated, more respondents indicated that they expect residential prices to lift further in the year ahead, with the survey’s residential price index rising to 19.0, up from 10.2 in the December quarter.
That figure is simply the net sum of “increase” and “decrease” responses to the survey, with the figure the highest seen since the December quarter of 2015.
It must be noted that what is projected to happen does not always reflect reality. Indeed, at the start of last year, the index sat at just 3.6. Over the year, Australian capital city house prices recorded the largest increase since 2009, according to data published from CoreLogic.
Adding intrigue to the lift in those expecting prices to increase further, it came despite widespread belief that interest rates will rise in the year ahead.
“A noteworthy feature of this quarter’s survey is that businesses nationwide now expect interest rates to increase over the coming year,” said Yetsenga.
“This reflects both the RBA being at the end of their easing cycle, as well as tighter funding conditions.”
Yetsenga suggests that, as yet, “there is little sign that the likelihood of higher funding costs is having an adverse impact on the property sector”.
As seen in the table below from ANZ, the improved sentiment towards prices was also replicated for the outlook towards residential construction and forward orders which improved during the quarter. Only the employment index fell back, although, at 37.5, it indicates that growth is expected to moderate, rather than decline.
Despite recent weakness, those views — outside of new orders — are not all that surprising given Australian building approvals hit record highs in 2016, suggesting that there’s still a massive pipeline of work to come as those approvals begun construction.
“While we expect dwelling investment to fall slightly through the second half of 2017 given the recent decline in building approvals, a significant backlog of work is likely to see construction remain around historically high levels,” says Yetsenga.