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Economic growth concerns weigh on property industry sentiment

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Property industry sentiment across Australia has retreated from its post-federal election bounce to below the historical average according to the latest ANZ/Property Council Survey for the December 2019 quarter.

Sentiment has fallen by 10 index points from the previous quarter to 118 which is below the historical average of 126 since the survey’s inception in 2011. A score of 100 is considered neutral.

“Growing concerns about national economic growth are weighing on sentiment in the property industry, with a sharp drop in sentiment over the last quarter,” said Ken Morrison, Chief Executive of the Property Council of Australia.

“With the property industry accounting for 13 per cent of GDP and housing construction falling sharply, this is a significant shift.

“The survey underscores the importance of some clear signals from policy-makers on measures which will stimulate investment and spending and underpin confidence for the future.

“When federal, state and territory treasurers meet next week, they should put reforms which will stimulate investment in the property sector at the top of their list, both to boost economic activity as well as ensure there is a strong and stable supply of housing over coming months and years.

“While this survey shows a turnaround in expectations for house prices, sharply falling housing construction will mean that the market will be undersupplying demand again in 2020.

“There are productivity levers that can be used especially at the state and territory level which can smooth out the cyclical nature of the residential property market and ensure that our growing population’s needs for housing are adequately met along with other infrastructure and services.

“The South Australian Government’s risky changes to land tax for property owners and investors has led to precipitous drops in sentiment across the board in just one quarter – a massive own goal for a state which had been leading the way on sentiment and confidence in recent surveys.

“There’s a clear message for all Australian governments – confidence is hard-won, and easily lost through poorly conceived, ad hoc or prejudicial policy changes,” Mr Morrison said.

ANZ Senior Economist, Felicity Emmett commented on the December 2019 quarter results:

“Signs of recovery in the residential property market have been emerging for some months now, with sentiment turning around convincingly in May (2019). Since then auction clearance rates have picked up sharply, prices have been rising strongly now in Sydney and Melbourne for two months, and housing finance is starting to pick up. Interest rate cuts (both actual and anticipated), and regulatory easing have been key drivers of this turnaround.

The results of the latest survey show the strong improvement in sentiment has extended into the current quarter. The continued improvement in credit availability suggests that construction activity, and not just prices, should begin to pick up in coming months. Prices are clearly benefitting from the combination of some pent-up demand and low levels of stock, but we continue to think that the current period of strong monthly prices gains will be relatively short-lived, and that prices will moderate in coming months as more supply comes on stream and credit policies remain relatively constrained.

The decline in sentiment in the commercial property sector, while not sharp, continues the downward trend evident since mid-2018. Marked weakness in retail is clearly weighing on the overall commercial sector, while concerns over land tax reform appear to have dampened sentiment in South Australia. But even outside of these segments, sentiment looks to be trending lower with the recent soft tone to the economy and ongoing uncertainty around the global outlook, likely weighing on the business investment environment.”

Highlights from the December 2019 quarter

A score of 100 index points is considered neutral.

  • The national confidence index fell by 10 index points for the quarter to 118 points; it’s second-largest quarterly decline since the survey’s inception and below the historical average of 126.
  • Confidence declined across all markets and most significantly in South Australia which fell by 43 index points, the biggest quarterly fall of any state or territory in the survey’s history. SA has gone from the highest confidence rating in the country to the lowest, in just one quarter.
  • National forward work expectations have moderated slightly by five index points, with declines across all state markets, except for the ACT which recorded a 38 index point increase. Expectations have decreased significantly in South Australia. Similarly, staffing level expectations have also fallen by four index points this quarter to its lowest level in over six years and below the historical average.
  • National economic growth expectations have dropped by 18 index points into negative territory of -14. (The June (2019) quarter GDP result was announced during the survey period.) Respondents in SA, NSW and Queensland expected slower economic growth for their states over the next 12 months.
  • Respondents from all states and territories expect another cut to interest rates in the next 12 months and maintained expectations around debt finance becoming more accessible over the next 12 months (except SA).
  • For the first time in 18 months, respondents expected residential prices to increase over the next 12 months, with Victoria, NSW, Queensland and the ACT recording the largest turn-around in sentiment.
  • Expectations for office and industrial capital growth both declined by two index points for the quarter, with SA moving into negative territory.
  • Retail capital growth expectations continue to be negative, declining by a further nine index points and remaining in negative territory for the sixth consecutive quarter.
  • Retirement living capital growth expectations decreased by three index points, although remains solidly in positive territory at 23 index points.
  • Hotel capital growth expectations declined by four index points overall, but remains positive in NSW, Victoria, Queensland and the ACT. WA continues to be negative, SA dipped into the negative for the first time in almost seven years.
  • Construction activity expectations have decreased in all sectors tracked over the December 2019 quarter, except for residential although it remains in negative territory.
  • Sentiment towards the Federal Government soared in the previous quarter but has moderated significantly in the December 2019 quarter, falling from 18 to six index points. Sentiment in Victoria was marginally negative. 30 per cent of survey respondents identified cities and infrastructure delivery as the most important issue for the Federal Government, followed by housing supply and affordability (17 per cent); energy, environment and emissions (15 per cent); economic management (14 per cent), tax reform (13 per cent) and planned population growth (11 per cent).
  • Overall sentiment towards state and territory governments has dipped into negative territory, led by strongly negative sentiment in SA and Queensland. Sentiment in SA has plunged by 48 index points, from 20 to negative 27 in one quarter. Overall, property taxes and charges was the most critical issue industry would like to see addressed by state and territory governments (23 per cent) followed by planning regulation and reform (21 per cent).

Background:

The ANZ/Property Council Survey commenced in 2011. It is now one of Australia’s largest surveys of sentiment in the property industry – our largest industry and employer which supports 1.4 million jobs. Respondents are drawn from across the property industry, including property developers, managers and agents and service providers.The survey was conducted between 3-18 September and included 1,068 respondents.

Source: Property Council of Australia

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