Confidence in Australia’s property industry has dropped to five year lows as fears about a deeper than expected housing market downturn continue to grow.
Releasing the results of its latest Property Industry Confidence Survey undertaking in conjunction with ANZ, the Property Council of Australia said its Property Industry Confidence Index fell by three points in the March quarter from 126 to 123.
Whilst the index remains above the 100.0 level which separates net optimism from overall pessimism, the result represents the lowest reading on record since the September quarter of 2013.
Compared with the corresponding reading taken for the same quarter last year (138), the index has fallen by 15 points.
The latest result comes amid fears about slowing conditions in the housing market.
Data released last week by CoreLogic showed that national average house prices dropped 2.3 percent in the December quarter – the lowest quarterly decline in dwelling values since the December quarter of 2008.
The downturn is being particularly felt in Sydney and Melbourne, where prices have declined by 3.9 percent and 3.2 percent.
The slowdown is also being seen in levels of building activity.
In November, seasonally adjusted residential building approvals fell to their lowest level in more than five years.
Not surprisingly, therefore, participants in the Property Council/ANZ survey are not optimistic about the residential sector outlook.
In the survey, the index showing expectations for house price capital growth over the next twelve months dropped 23 points to register its lowest level on record since the survey began in 2011.
Those in New South Wales were especially pessimistic, with the index for house price capital growth expectations falling by 60 points in that state.
Likewise, debt finance availability expectations (negative 27) have also fallen amid a tightening of credit availability and greater caution in lending practices amid the fallout from the banking royal commission.
As well, the index for residential construction expectations also registered its weakest ever reading.
Over the past year, residential construction expectations have fallen by 21 points on the index.
Not surprisingly, all this is impacting expectations regarding forward work schedules, which declined in the latest survey across all states except for the ACT.
On a more positive note, however, expectations remain broadly positive despite easing back across all segments of the commercial market except for retail.
ANZ Head of Australian Economics, David Plank, said the survey results were broadly consistent with the bank’s view that the sector is being ‘challenged by a number of headwinds’.
According to Plank, house prices are expected to fall through to 2020.
This will be particularly felt in Sydney and Melbourne, where the ‘peak to trough’ decline in house prices could reach 15 to 20 percent.
As well, the bank expects that the slowdown in new home and apartment construction will accelerate through 2019 and 2010 as the current backlog of work is gradually completed.
Property Council of Australia chief executive officer Ken Morrison said the property sector is being impacted by tightening credit and softening residential markets.
He called on policy makers to be aware of the softening conditions when responding to the recommendations of the banking royal commission and to avoid hasty decisions which could impact the property sector and the broader economy.
“One of the big engines of the Australian economy is slowing, hit by tightening access to finance, softening forward work schedules and a less optimistic view of the economy,” Morrison said.
“It’s a message our political leaders need to heed, with the final report of the banking royal commission due in February, a state election in our most populous state and biggest property market (New South Wales) in March, and then a federal election in May.
“It’s crucial that our policy-makers take the longer term view and support sensible policies that sustain and stimulate the growth of Australia’s biggest industry which supports 1.4 million jobs and delivers the places our growing population needs to live and work.
“The global economy headwinds are picking up, foreign investors have been turned away, credit availability has tightened, and our largest residential markets have softened rapidly.
“It’s not the time to be making changes to policies which undermine certainty, confidence or incentives to invest in Australian property.”