The housing boom is likely to start deflating over the next 12 months, the latest ANZ/Property Council Survey of confidence in the property industry shows.
The survey of more than 2,200 investors, developers and other key industry players across the country shows that while the outlook remains optimistic as interest rates stay low, expectations for price growth and new dwelling construction have eased.
In fact, a research note from Macquarie Bank’s wealth management division reported in The Australian Financial Review predicts property prices will fall by up to 7.5% over the next two years.
Less optimism
The property industry accounts for 11.5% of GDP and is the nation’s second-largest employer.
The survey shows that confidence remains positive nationally but has trended down over the four quarters and the reading of 130 –100 is neutral – for December 2015 is five points below that for the same quarter last year.
ANZ Co-Head of Australian Economics Cherelle Murphy said: “Respondents in the majority of states, including NSW and Victoria (which together contribute more than 50% of Australia’s GDP), are less optimistic than 12 months ago.
“Those in the residential sector recorded a larger decline in confidence in the last 12 months than any of the commercial property sectors.”
Source: The ANZ/Property Council Survey 8 October 2015
NSW, Victoria still lead
Industry players in NSW are still the most confident, at 144 points, despite a two-point drop, and Victoria is holding steady at 134.
Queensland at 132 (up 2 points); the ACT at 135 (up 4 points); and the Northern Territory at 105 (up 11 points) all recorded rises in confidence for the quarter.
In other minor variations, Tasmania came off one point to 142, South Australia fell two points to 118, while Western Australia flatlined at 102.
“[We expect] housing construction to remain elevated due to low interest rates and solid underlying housing demand, but we don’t expect further growth,” Ms Murphy said.
“In particular, recent data show investor borrowing has slowed in response to APRA’s [Australian Prudential Regulation Authority’s] macro prudential policy requirements.”
APRA directed banks to restrict the growth of lending to property investors to 10% a year and requested lenders increase the amount of capital they hold against their residential mortgage exposures to between 25% and 30%, up from about 16%.
Economic implications
Ms Murphy said that as the housing sector softened, employment growth would also wane in construction and a range of services industries benefiting from housing activity.
“Without above-average employment outcomes in the rest of the economy, the unemployment rate could push higher,” she said.
Property Council of Australia Chief Executive Ken Morrison said, “In the December quarter, we saw a drop in debt finance availability expectations across the board, which is evidence that our regulatory safeguards are functioning as intended.
“The economy has relied on strong housing construction, so any softening would have a broader national impact, particularly in terms of jobs and economic activity.
“Housing affordability into the future hinges on maintaining a high level of new residential construction to meet the demands of our growing population.”
With housing construction levelling off and adding no more fuel to the national GDP, any more strengthening in the Australian dollar may force the Reserve Bank of Australia to cut official interest rates from the current 2% level to stimulate other parts of the economy.