Property sector confidence eases, but remains buoyant

PROPERTY SECTOR CONFIDENCE EASES, BUT REMAINS BUOYANT.

KEY POINTS

• The Australian Property Confidence Index fell 1 point to 131 in the September Quarter. While this is down from the high of 140 in Q1 of this year, it remains higher than a year ago (121) and well above the levels recorded for much of the past three years (see Figure 1). Confidence across the residential and non-residential property sectors remains strong, is more positive than broader business confidence, and is in stark contrast to the recent weakness in consumer confidence.
• NSW remains the stand out State for property industry confidence. It rose 3 points to 143 and is just shy of the high of 147 recorded in Q1. Confidence in Queensland and Tasmania also rose in the quarter and both States have index readings above the national average (see Figure 1). The ACT is the only region experiencing soft confidence with an index reading of 101. Most indicators of confidence and activity in the ACT weakened in the quarter, consistent with the reception to the Commonwealth Budget delivered in May.
• The survey shows some moderation in housing market sales in recent months. Nonetheless, the housing market outlook remains positive, reflecting elevated auction clearance rates and home sales, solid house price gains and strong dwelling approvals. In addition, the latest Property Council-ANZ Survey also reveals solid foreign investor housing sales, particularly in New South Wales and Victoria.
• The detail within the report remains strong. All questions relating to firms’ own activity, such as hiring intentions and forward work schedule, are all at high levels. This is consistent with expected strong construction activity in the major metropolitan centres over the next year. This should support employment growth and eventually a broadening of the non-mining recovery.

COMMENT

“Confidence across the property industry hardly moved at all through the winter months and remains at a high level. With hiring intentions and work yet to be done still strong, the survey highlights the critical role the construction industry is playing in leading the recovery in the non-mining economy. We expect construction activity to take up some of the slack being generated by the downturn in mining and energy investment. This might be referred to as the first phase of the non-mining recovery. Phase two would be a broadening of non-mining business investment and job creation beyond construction. The residential sector is still the strongest part of the industry with construction activity and price expectations buoyant even though price expectations have softened this quarter in line with lower auction clearances. House prices now appear to be settling down to more sustainable growth rates. House prices are expected to rise over the next 12 months in every State except the ACT.

The industry uniformly expects the next move in interest rates to be up. The majority expect the RBA to raise interest rates within 12 months, in line with ANZ expectations. This is at odds with market pricing, which has a rate cut priced as the most likely next move. This expectation of rising interest rates across the property industry is unchanged over the last nine months.”

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