Strong house price expectations over the next 12 months have offset modest confidence in the economy to deliver an improved outlook for the property industry according to the ANZ/Property Council Survey for the March 2020 quarter.
National property industry confidence levels have increased by five index points from the previous survey to 123. This is slightly above the average for 2019 of 121 index points, and three index points below the survey historical average. A score above 100 index points indicates net positive sentiment among survey respondents.
Ken Morrison, Chief Executive of the Property Council of Australia said: “Housing construction is one of the big engines of the Australian economy, so it’s encouraging news that industry sentiment has strengthened, but it also heralds a renewed challenge for policy-makers on housing affordability.
“Strong house prices help underpin confidence and activity, but without matching housing supply, this can lead to runaway price increases and real housing affordability pressure.
“Coming off the back off a sustained drop in new housing approvals and construction starts, we must be vigilant to ensure housing supply keeps up with demand, including population growth, as the residential market reboots.
“Governments must be on the front foot in keeping the housing supply lines open and support affordability through better planning and infrastructure delivery.
“It will be important for all levels of government to keep their focus on these challenges in the months ahead, on top of the huge job of helping our bushfire-affected communities recover and rebuild,” Mr Morrison said.
The ANZ/Property Council has proven to be an accurate indicator of housing prices since its inception, as reflected in the chart below which compares the outlook tracked in the ANZ/Property Council and ABS dwelling prices since 2011.
Source: ANZ/Property Council, ABS
ANZ Senior Economist, Felicity Emmett, commented: “Signs of recovery in the residential property market have been emerging for some time, with sentiment turning around convincingly in May. Since then, auction clearance rates have picked up sharply, prices have been rising strongly in Sydney and Melbourne and housing finance is starting to pick up.
“The improvement in the residential property market seems set to continue. The results of the latest survey show that the strong improvement in sentiment about residential property has extended into the current quarter. The continued improvement in credit availability suggests that the outlook for construction activity, not just prices, should begin to pick up in coming months – initially though a stabilisation and then up-tick in building approvals. Prices are benefitting from a combination of pent-up demand and low stock levels, but we think that the current strong monthly price gains will moderate in 2020 as more supply comes on stream and credit policies stay relatively constrained.
“A pleasing aspect of the latest survey is the lift in sentiment toward commercial property. Recent weakness, albeit at a generally high level, had us concerned about a possible loss of momentum in the non-residential sector. The recovery in sentiment in this survey suggests the recent weakness in non-residential building approvals might be short-lived.”
March 2020 quarter survey highlights
Respondents from all states and territories surveyed expected residential capital values to improve over the next 12 months, with the national expectations index increasing by 17 to 35 index points for the March 2020 quarter.
This is well above the survey historical average score of 11 index points, and builds on the positive trend from the last quarter following five quarters of negative sentiment.
For the first time in 18 months, residential construction activity expectations have also moved back into positive territory.
- Residential value expectations in Victoria are at an all-time high in the survey history and at their strongest levels in NSW since the December 2015 quarter, and in Queensland since March 2015 quarter.
- Expectations have also rebounded in South Australia following a significant dip in the previous quarter.
On most other measures, including commercial property, overall industry sentiment remains positive for the March 2020 quarter.
- Expectations for national forward work schedules and staffing levels remained strong. Forward work schedule expectations rose by two points to a net balance of 36, while national staffing level expectations increased by one point to a net balance of 15.
The outlook for economic growth remains negative for the March 2020 quarter, although has improved from -14 to -7 points since the last quarter and has improved from -19 in the June 2019 quarter.
- Confidence in the Federal Government’s role in delivering policies to stimulate jobs and growth is now at neutral, falling by six points for the quarter.
- Most markets surveyed expected little change in their economic performance over the next 12 months, although South Australia returned into positive territory following a big slump in the last quarter prompted by concerns about proposed changes to the state’s land tax regime.
Respondents from around the country expected another interest rate cut within the next 12 months, and also anticipated improvements in access to debt finance.
Expectations for office capital growth increased by 4 points over the quarter with sentiment strongest in Victoria followed by NSW, the ACT and Queensland.
Expectations for the industrial sector remained unchanged for the March 2020 quarter at 22 points with all markets reporting another quarter of positive sentiment.
However, retail capital growth expectations continue to be negative overall at -14 points despite a six point improvement for the quarter.
Retirement living capital growth expectations increased by a further 8 points to 31 points which is the highest positive sentiment score for all of the property sectors surveyed.
Expectations for hotel capital growth were positive in all markets except for WA; at 10 points nationally for the quarter.
Prime cap rates are expected to compress across all markets surveyed over the next 12 months with the exception of Queensland. Secondary cap rates are expected to ease across most markets.
According to the survey respondents, the most important issues for the federal government to address are cities and infrastructure delivery (27 per cent), followed by energy, environment and emissions reduction (19 per cent) and housing affordability (15 per cent).
- For state and territory governments, property taxes and charges were the top priority for 21 per cent of respondents, followed by housing supply and affordability (20 per cent), development around transport nodes (20 per cent), and planning and regulation reform (19 per cent).
- NSW was the only state or territory government to receive a positive rating for its performance on planning and managing growth, although the rating was effectively neutral. Queensland received the worst rating.
The online survey of 953 respondents was conducted between 18 November and 6 December 2019 and measures forward-looking expectations.