ANZ Property Council industry confidence survey June 2019 quarter

A six-year low in property industry confidence levels underscores Treasury’s budget warnings about the risks to the economic outlook from a further deterioration in the housing sector.

The ANZ Property Council industry confidence index for the June 2019 quarter recorded its fourth consecutive quarterly decline and its lowest level since March 2013, falling by eight points to 115 index points.  A score of 100 index points is considered neutral. Confidence levels were down in all states, except the ACT.  

Over the past 12 months, industry sentiment has dropped by 28 index points, with the biggest falls in Victoria (-33), NSW (-32) and Queensland (-26). The ACT had the smallest decline during the period (-7) followed by SA (-11).

“This is a significant further drop in confidence in one of the big engines of the economy, just one week after Treasury flagged the risks of a declining housing sector in the budget papers,” said Ken Morrison, Chief Executive of the Property Council of Australia.

“The downturn in residential markets is driving this confidence slump, but we’re also seeing a less positive outlook across a number of important indicators, including expectations around national economic growth, construction and capital growth across some property types,” said Ken Morrison, Chief Executive of the Property Council of Australia.

“The key message for policy-makers is to keep a sharp focus on the property industry and be prepared to step up with a housing contingency plan if that’s what the economy needs.”

“It is certainly a bad time to be risking changes to policy settings such as negative gearing and capital gains tax which may lead to a further drop in confidence across the industry,” Mr Morrison said.

The ANZ Property Council Survey for the June 2019 quarter measured sentiment across the property industry, with responses from 1,184 people between 11-26 March. The survey is the largest of its kind for property and one of Australia’s largest surveys of business sentiment.

ANZ’s Head of Australian Economics, David Plank commented:

“The most important aspect of the latest ANZ-Property Council survey could be the improvement in the availability of finance. It was a modest improvement in this part of the survey in mid-2017 that signalled greater stability in the housing market later that year and in early 2018. Finance availability then deteriorated sharply, continuing to fall through the rest of 2018 and into 2019. We think this deterioration was the trigger for the renewed house price weakness in Sydney and Melbourne from that point. The turn in finance availability captured in this survey could signal a turn in the market. Certainly it suggests we may be the past the worst of the downturn in building approvals.

“We need to be cautious, though, about the outlook. Finance is still difficult to get, and sentiment in the residential property space is very negative. This primarily reflects the price outlook, which has fallen further in New South Wales and Victoria. Sentiment does tend to lead rather than follow prices, however, certainly over the past few years. We think the continued downturn in price sentiment reflects recent developments rather than indicating a deterioration in the outlook. The shift in expectations with regard to interest rates may help the outlook. Still, we expect further declines in house prices this year.

“Outside residential, sentiment is much better. It has, however, declined from its recent peak across most sectors. Sentiment in the retail sector is especially soft, which is not surprising.”

The key findings include:

  • Expectations around national economic growth fell sharply to their lowest level since the survey began in 2011, down by 16 index points on the previous quarter to now sit squarely in negative territory (-19). SA recorded the smallest drop, while respondents from NSW were most bearish on the economic growth outlook.
  • Despite this, expectations for forward work schedules largely held, declining only slightly for the June quarter, down one index point to 31 – the lowest level since March 2013. NSW recorded the largest decline falling by 5 index points, while Queensland, WA and SA all recorded modest increases.
  • The outlook for staffing levels also largely held across all states, with a 4 index point drop on the previous quarter, except NSW where this halved to 11 index points.
  • For the first time in two and a half years, survey respondents forecast a fall in interest rates over the next 12 months.
  • There was a moderation in concerns around the availability of debt finance over the next 12 months, although most respondents still felt it would continue to be difficult to access finance.
  • Expectations for housing capital values declined further to -33 index points, the lowest level since the survey’s inception. NSW scored the worst result, at -62 index points, followed by Victoria, Queensland and WA. Respondents from SA were moderately more positive.
  • Office capital growth expectations remain positive overall, decreasing by just 1 index point. Industrial capital growth expectations remained strongly positive at __ index points, an increase of 1 index point for the quarter. Hotel growth expectations fell by 3 index points although remains in positive territory. Retail capital growth expectations were negative for the fourth consecutive quarter, falling by 9 index points. Retirement living remained in positive territory although was down by 8 index points on the previous quarter.
  • All sectors recorded falls in construction activity expectations, except for office and industrial. Over the past 12 months, construction activity expectations for the residential have dropped mostly sharply, followed by retirement, hotels, retail and office. Only industrial has recorded an increase in sentiment during that period.
  • Sentiment towards the federal government remains neutral overall, although respondents from SA were most positive, recording an increase in satisfaction for the quarter.
  • Most state and territory governments were in positive territory in terms of their performance on planning and managing for growth, expect for Queensland where sentiment remains negative although improved by 11 index points for the quarter.
  • Economic growth was identified as the most critical issue for the federal government (28%), followed by housing affordability (23%), cities and infrastructure (15%) and the newly-included issue for this survey of population growth and migration (12%).

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