Soft growth hurts property industry sentiment

Confidence continues to be weighed by soft growth and economic concerns as industry sentiment fell in the December quarter.

Confidence continues to be dragged down by soft growth and economic concerns from commercial side of the property industry, with sentiment for the quarter plummeting.

Industry sentiment plummeted 10 index points in the December quarter, according to new a new survey from ANZ and the Property Council. While still in positive territory at +8 index points, sentiment remains significantly below the long-term average of +26 index points.

Ken Morrison, chief executive of the Property Council of Australia, said poor confidence may highlight a looming housing undersupply issue.

“Growing concerns about national economic growth are weighing on sentiment in the property industry, with a sharp drop in sentiment over the last quarter,” Mr Morrison said. “With the property industry accounting for 13 per cent of GDP and housing construction falling sharply, this is a significant shift.

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

South Australia experienced the most significant drop in confidence of 43 index points for the quarter, sharply falling from most to least confident. The change is largely linked to proposed changes to land tax for property owners and investors, which caused forward work and state growth expectations to take a hit.

Signs of residential recovery have been emerging since May, lifted by the outcome of the federal election. Prudential regulator APRA’s decision to lower the serviceability floor for borrowers, the banks easing lending and three rate cuts have led to a growing hum of activity, demonstrated through the especially high auction clearance rates in Sydney and Melbourne since July.

The change had led to the first prediction of residential value growth in 18 months, with Victoria, NSW, Queensland and the ACT each expecting higher annual housing prices.

Other property sectors have been slower to catch up. Construction activity expectations decreased across the board in the quarter, with all but residential remaining in the red.

ANZ senior economist Felicity Emmett said construction activity, and not just prices, should begin to pick up in coming months. “The decline in sentiment in the commercial property sector, while not sharp, continues the downward trend evident since mid-2018,” Ms Emmett said.

“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.”

Retail growth expectations causeed a further nine index points into the negative for the sixth consecutive quarter. Expectations for capital growth in the office and industrial, retirement and hotel sectors also fell between two and nine points.