Rates, tax cut boost capital city housing

Stimulus from ultra-low interest rates and income tax cuts is flowing to the housing market rather than the economy.

The stimulus from ultra-low interest rates and income tax cuts is flowing through to the housing market rather than the broader economy with property developers Mirvac and Stockland getting a boost from the lift in sentiment that has fired up inquiries in major capital cities.

The share prices of listed residential developers have run strongly since the Morrison government was re-elected in May, defying a broader slowdown in the economy and stalling consumer confidence.

While property markets are firing up from back-to-back official cash rate cuts by the Reserve Bank to a record low of 0.5 per cent, the impact on other parts of the economy remains muted.

The combination of rate cuts and tax breaks was expected to have boosted household disposable income by about 1.25 to 1.5 percentage points, HSBC Australia chief economist Paul Bloxham said.

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“However, so far there is little evidence that this has boosted consumer spending, with retail sales still sluggish in August and consumer sentiment falling in October,” Mr Bloxham said.

Shares in auto parts to sportswear retailer Super Retail Group on Tuesday slid by 8.6 per cent after it revealed it had turned to greater discounting as a means of driving sales, with consumers remaining cautious amid a mixed picture for the broader economy.

“In response to a cautious consumer, we have activated a higher level of promotional activity across the business, which has successfully generated top line growth but adversely impacted margin,” chief executive Anthony Heraghty told investors at the retailer’s annual meeting on Tuesday.

A key test of the mood of consumers will follow on Thursday with first-quarter updates from major listed companies including JB Hi-Fi, Tabcorp, Star Entertainment and Crown Resorts.

While economists have curbed their call for a November rate cut, many are tipping another cut by December, with some, including Westpac’s Bill Evans, tipping that Australia could shift to quantitative easing by early next year.

Still, developers are bucking the sombre trend and have reported rising inquiry levels for both homes and apartments. At the same time the auction clearance rate has been well ahead of last year at about 75 per cent last week, according to research house Core­Logic’s preliminary figures.

The strong bounce back has prompted forecasts of hefty increase in house prices but the recovery has been mixed, with Stockland saying inquiries about its land estates had dipped from the post-election boom period but Mirvac, which is more focused on apartments, saying inquiries were up even as the industry deals with failures of several residential towers.

Stockland chief executive Mark Steinert said that apartment starts in the key eastern seaboard markets of Sydney, Melbourne and Brisbane were off by about 60 per cent and there had also been a moderate decline in housing starts.

“The thing that is likely to extend that recovery in our view … is the availability of credit to smaller and mid-tier developers and also for larger developers. If you don’t have a large balance sheet you’re going to be dependent on bank finance,” Mr Steinert told The Australian.

The Stockland chief said the federal government had done “everything they can” while state governments had planning rules at their disposal, but this was complicated by councils.

The national unit market has been blighted by scandals over cladding and poor engineering practices, leading to building evacuations. But Mirvac says it has sought to drive higher standards.

Mirvac chief executive Susan Lloyd-Hurwitz said as the apartment market “continues to face scrutiny, and building standards are called into question, we are actively engaging with government and other stakeholders to drive change”.

Mirvac cited the improving housing market and said it was on track to hit its full-year earnings target as inquiries rise for its developments, including a super-tall tower in Sydney’s George Street.

The lift came after rival developer Stockland’s residential unit turned in its best quarter of the year, driving its shares up by 6.5 per cent on Monday. Mirvac is also expecting to benefit from rising sentiment in the property market although its shares were off 2c to $3.15 on Tuesday.

“We have passed the bottom of the residential cycle. There are now clear signs of improvement in the Sydney and Melbourne established housing markets with lifts in loan approvals consistent with the upturn in auction market activity, prices and turnover,” Ms Lloyd-Hurwitz said.

Mirvac settled 613 residential lots in the September quarter and said it was on track to hit more than 2500 settlements this year.