Aus property: sentiment resilient despite lockdowns

With vaccination rates approaching 80 per cent across the country for first doses, sentiment is being underpinned by expectations of a solid economic rebound on top of a large pipeline of residential construction and strong house prices.

“While economic growth expectations declined in the latest ANZ-PCA Survey, they remain significantly above pre-pandemic levels.”

The impact of the pandemic has been uneven. In the residential sector, the outlooks for both construction and prices are benefitting from targeted stimulus like the HomeBuilder program and record low mortgage rates. Conversely, the impact of COVID-19 is weighing on the office sector with the latest round of lockdowns stalling the recovery in sentiment in office property, hitting occupancy and highlighting concerns about the extent and permanence of work-from-home arrangements.

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The resilience in property confidence is encouraging and is consistent with much of the economic data released over the past few months. Business conditions, consumer confidence and the labour market have all fared significantly better through the current lockdown than through the national lockdown last year. Businesses have adapted their working models and households are managing well. Ongoing fiscal and monetary support, combined with the vaccination rollout, has maintained confidence economic activity will rebound quickly once restrictions lift.

While economic growth expectations declined in the latest ANZ-PCA Survey, they remain significantly above pre-pandemic levels, with a net balance of 18 per cent of respondents expecting economic growth to lift over the next year. These expectations of strong economic growth over the next year are clearly supporting property sentiment.

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Residential property confidence remains high

Residential property sentiment declined modestly in the last survey although confidence remains well above its long run average, supported by ongoing strong house price gains.

A drop in expectations for housing prices drove the decline in the September survey but the decline still leaves the index at its third highest level on record. Importantly, businesses report being very confident about their own outlook – with employment expectations barely nudging and the forward work schedule rising.

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Firms continue to ratchet down expectations of house price gains, although a net balance of 72 per cent of firms in the residential sector expect prices to rise over the coming year. Some moderation in expectations isn’t surprising given housing prices have risen by 17.4 per cent over the past year, the strongest annual gain since 2002.

Prices do appear to be moderating from the extraordinary increase in the first half however further solid gains look likely with the cash rate set to stay at the historic low of 0.1 per cent until 2024.

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The residential construction outlook edged marginally lower while remaining very positive. Nationally, a net balance of 51 per cent of firms in the residential sector expect an expansion in activity, down from 52 per cent in the June survey.

The outlook varies across states with expectations rising in New South Wales, Queensland and Western Australia, and declining in Victoria and South Australia.

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Office sector confidence is clearly being buffeted by ongoing lockdowns. The PCA’s latest office occupancy survey shows levels in Sydney and Melbourne are at 4 per cent and 7 per cent of pre-pandemic respectively. While mobility restrictions are the main factor at present, a more permanent shift to working from home is also a factor.

Prior to the current lockdowns, the largest influence on office occupancy was a preference for greater flexibility and working from home. Prior to the current lockdown, the Australian Bureau of Statistics found, of the 30 per cent of businesses with staff then working from home, 80 per cent expect to have some working from home permanently.

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While overall office property confidence fell in the September survey, performance across indicators was mixed. The forward orders and prices measures fell while the outlook for employment and construction were unchanged.

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While sentiment in the retail sector was down modestly, the details were mixed. Driving the overall decline were drops in the forward work schedule and construction activity. The price outlook, however, rose strongly and is now back in positive territory for the first time since 2018.

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Felicity Emmett is Senior Economist at ANZ

Click here for a copy of the full September 2021 ANZ-Property Council Survey