Confidence in the property sector throughout Australia has risen in every state except Victoria as a stabilisation in interest rates is fuelling expectations of further house price growth, the latest survey shows.

Conducted by the Property Council of Australia in conjunction with construction project management software firm Procore, the latest Property Industry Confidence Survey involved responses from 508 respondents who were drawn from across the real-estate sector.

It found that overall, the Property Industry Confidence Index rose by six points to go from 114 in the December quarter to 120 in the March quarter.

At this level, the index is well above the 100.0 level which separates net optimism from net pessimism.

The improvement was seen across all states except Victoria, where confidence dropped from 106 to 104 – the lowest level of any of the main states.

Driving the confidence uplift is an underlying belief that that interest rates have now finished rising and that the next move in interest rates will be downward.

Indeed, survey participants expressed strong confidence that interest rates will decline over the next twelve months.

That has led to soaring expectations in respect of house prices along with optimism about an improvement in debt finance availability.

Indeed, house price expectations over the next twelve months climbed further during the March quarter to reach 43 index points.

This is highest level on record since December 2021 and well above the historical survey average of 12.

A score of 0 is considered neutral.

Expectations also lifted in respect of forward work schedules and staffing levels as well as capital growth in industrial property, retirement living and hotels.

However, participants were pessimistic about economic prospects as well as capital values in the office sector.

The subdued expectations around the economy comes as inflation and higher interest rates continue to impact upon demand.

As a result, the Reserve Bank of Australia expects the national economy to grow by only 1.8 percent this year (calendar year) followed by 2.5 percent growth in 2025.

Meanwhile, prospects in the office sector are subdued as slumping demand and above average levels of stock additions over recent years are leading to 28-year high vacancy rates.

As mentioned above, Victoria was the only state to record a drop in confidence levels.

Indeed, at 104, confidence in Victoria is the lowest of any state and is well below the national average of 120.

Several factors may be contributing to this.

First, survey respondents from Victoria were extremely pessimistic about the likely near-term economic performance of their state.

Indeed, Victoria was the only state in which respondents believed that the economy would contract in size over the next twelve months.

This comes despite a recent forecast from Deloitte Access Economics that Victoria’s economy would outpace all other states and territories both in the 2023/24 financial year and over the five years to 2027/28.

Turning to real-estate specifically, the relatively high value of mortgages in Victoria means that the state’s property market (along with that of New South Wales) is more sensitive compared with other states to higher interest rates.

This could be one reason why dwelling price increases over the twelve months to March have been far more subdued in Melbourne (3.2 percent) compared with those in other major capital cities (average 10.1 percent), according to CoreLogic data.

In addition, Victoria’s property industry has been frustrated by changes to state property taxes which have occurred over recent years.

In last year’s May budget, for example, the Government announced a raft of tax changes. These included a reduction in the tax-free threshold for general land tax rates, a new ‘COVID-19 debt temporary surcharge’ to be applied in addition to existing land tax and an increase in the absentee owner surcharge.

In October, the Victorian Government announced a further expansion of its vacant residential land tax regime along with a prohibition of adjustments for land tax and existing windfall gains tax liabilities.

Potentially as a result of this, Victorian respondents had a more pessimistic view of their state government performance in terms of planning and managing growth compared with their peers in any of the other five main states.

Turning to policy action, meanwhile, there was a consistent theme across survey respondents nationwide about the need for Commonwealth and State Governments to address housing affordability concerns.

Indeed, 40 percent and 41 percent of survey respondents say that improving housing affordability was the most important issue in terms of the property sector facing the Commonwealth and state governments respectively.

Property Council of Australia Group Executive Policy and Advocacy Officer Matthew Kandelaars said expectations around a stable interest rate environment and easier access to debt finance are helping to boost industry confidence.

But he called on governments to do more to address housing affordability concerns.

“The persistent issue of housing supply and affordability remains a significant concern for industry experts despite confidence rising,” Kandelaars said.

“We see in the survey that high expectations around housing price growth are being driven by a dire undersupply of housing across Australia.

“Participants have said housing supply and affordability is the main concern for the federal and state governments at historically elevated levels since March 2021. This simply cannot continue.

“All levels of government need to back in our national housing target, roll out the welcome mat for investment into the property sector and fix our broken planning systems to deliver the homes we need.”

Turning to Victoria, Kandelaars said that the poor survey result ‘accords with everything that our members are telling us’.

He called on the Victorian Government to adopt a more stable approach to tax policy settings.

“As long predicted, a history of almost-quarterly tax and regulatory changes has dented long-term confidence, which is a story consistent across domestic and international investors.

“The message is simple: the ambitions in the Victorian Government’s Housing Statement rely on stable tax and planning settings, and the confidence of industry to invest.”

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