Property sector growth expected to weaken

The latest ANZ-Property Council Survey revealed a decline in sector confidence from 128.5 index points to 128.4 points during the December quarter, which ANZ said largely reflected a sharp fall in the outlook for dwelling construction and residential property prices – down 15.6 points and 19.2 points respectively.

“This shift in view highlights that residential property cannot continue to provide the economy with an ongoing source of stimulus,” the bank said.

“In the absence of this source of growth, the soft underbelly of the Australian economy is likely to be exposed.”

In comparison to the sharp fall in optimism towards the housing market, the survey showed that the outlook for commercial property remained broadly stable.

“In fact, confidence levels for commercial property businesses were stronger than residential property businesses since the survey was first conducted in 2011,” ANZ added.

Looking at the states and territories, property sector confidence for the December quarter was highest in NSW (143.7 points), followed by Tasmania (141.6 points), the ACT (135.2 points), Queensland (132.4 points), Victoria (133.7 points), South Australia (117.6 points) and Western Australia (101.5 points).

ANZ co-head of Australian economics Cherelle Murphy said that, like survey respondents, the bank expects housing construction to remain elevated due to low interest rates and solid underlying housing demand, but does not expect further growth.

“While dwelling approvals have remained high, there has been no further growth since the start of the year. The factors that have driven strong housing demand and higher prices are starting to unwind,” she said.

“In particular, recent data show investor borrowing has slowed in response to APRA’s macroprudential policy requirements.”

In addition, Ms Murphy said higher investor lending rates and increased mortgage lending capital requirements set out by APRA may have shaped the property sector view that interest rates will increase in the coming year.

“Our view is that soft economic growth, in part as a result of little further growth from housing activity, will provide scope for the RBA to cut the cash rate by a further 50 basis points next year,” she said.