ANZ RESEARCH

ANZ-PROPERTY COUNCIL SURVEY,

SEPTEMBER QUARTER 2018
Contacts

Daniel Gradwell, ANZ Senior Economist, 03 8654 6732

David Plank, ANZ Head of Australian Economics, 02 8037 0029
• The ANZ-Property Council Survey for the September quarter shows that sentiment in
Australia’s property sector worsened from last quarter’s record peak. The fall occurred
across most states and territories, with only Queensland and South Australia recording mild
increases. The latter has continued its impressive run and is now the country’s most
optimistic region.

• The fall in sentiment is entirely due to the residential segment. In a sharp reversal from the
stabilisation of previous quarters, the outlook for capital values in residential property has
deteriorated markedly. Staffing levels, construction activity and the forward work schedule
are all expected to ease in the residential space.

• Importantly, survey respondents expect the availability of debt finance to worsen. We

believe this has been the main driver of the current weakness in the housing market. Any
further tightening of credit will put more pressure on the industry.

• Sentiment toward commercial property is much better. The tourism and industrial sectors
are leading the way. Optimism around the federal government’s performance is also
positive.

ANZ HEAD OF AUSTRALIAN ECONOMICS, DAVID PLANK, COMMENTS:

“The ANZ-Property Council Survey for the September quarter gives a mixed report on
Australia’s property sector. The survey is the latest of many indicators that highlight the
current weakness in the housing segment, although the optimism in the commercial property
space is encouraging.

The survey results support our view that house prices are set for a sustained decline.
Respondents from within the housing sector share that outlook, especially in relation to
Sydney and Melbourne. The construction outlook is also softening.

The survey’s negative outlook for credit availability supports our view that this is driving the
recent weakness. The decline in credit availability recorded by this survey in 2015 proved to
be a good leading indicator of the subsequent fall in building approvals. We think it will prove
so again, meaning that a steep fall in building approvals is likely over the coming 6–12
months.

Easing dwelling investment will be a drag on Australia’s economy later this year. Falling
housing prices and the absence of a wealth effect will weigh on household spending, at least to
some extent. So far, however, consumers seem to be weathering the fall in house prices
reasonably well. ANZ Roy-Morgan Australian Consumer Confidence survey has been trending
higher since April and is well above its average level. Consistent with this, retail sales grew
solidly in April and May. With wage growth improving, albeit slowly, employment growing and
personal income tax being reduced, we think the economy will come through the tightening in
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credit availability relatively well. We still expect solid GDP growth of around 3% this year and
next.

The tightening in credit availability and the associated weakening of the residential housing
market do increase the economy’s vulnerability to additional shocks, however. We are
particularly focused on the risk of a global trade dispute. The combination of a global
slowdown triggered by trade and tighter credit domestically could be particularly damaging for
Australia’s economic prospects. This suggests that policy makers should be especially careful
about adding to the downside risks.”

CONFIDENCE IN AUSTRALIAN HOUSING MARKET FELL SHARPLY

The September quarter ANZ-Property Council survey shows that overall confidence in
Australia’s property market is still up, but the outlook for the residential sector is softening.
This suggests that the current weakness in the housing market is set to stay for some time.

We recently updated our outlook on Australia’s housing sector, noting that the market is
weaker than we had expected. We now anticipate prices falling around 10%, from peak to
trough, in Sydney and Melbourne. This ANZ-Property Council survey supports that view.

We believe that tighter credit availability is driving the current downturn in the property
sector. The latest tightening reflects a focus on mortgage lending. The sharp decline in the
survey respondents’ outlook on the availability of debt finance confirms this. The outlook for
credit availability is now at its worst in the history of the survey, with the drop in this quarter
more than reversing the gains from mid-2017 to early 2018.

In line with this, the outlook for capital values has materially worsened. New South Wales and
Victoria are leading this shift in sentiment, with a net 37% and 24% of respondents
respectively expecting prices to fall over the next 12 months. This reflects a sharp turnaround
from the net 20% who expected prices to rise this time last year.

This story is not uniform across the states, however. It is understandable that respondents
expect New South Wales and Victoria to experience the sharpest declines, given that those
housing markets have had the strongest growth in recent years. Households there are the
most highly leveraged and therefore the most susceptible to tightening lending standards. It is
encouraging, though, to see a stronger outlook in Queensland and Western Australia.
Queensland is experiencing accelerating population growth, which should support the housing
sector, while Western Australia is close to the end of the downturn in mining investment.

The outlook for residential construction activity has also eased, reaching its lowest level in six
years, albeit still in positive territory. If credit availability worsens (as expected by survey
respondents) it is likely that building approvals will follow suit. We believe that building
approvals are already moving past their peak. And we expect to see housing starts fall around
10% over the coming year. Despite this, a large (AUD40bn) backlog of work will elevate
residential activity for some time. But we expect to see residential investment easing modestly
in the second half of 2018 and into 2019. The sharp tightening in credit availability raises the
risk that the fall in activity may be steeper than we currently expect, especially in the second
half of 2019 and into 2020 as the backlog clears.
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COMMERCIAL PROPERTY IS STILL STRONG

It is not all bad news from the property sector. Several commercial segments are performing
well. Survey respondents from the tourism industry are the most optimistic, led by a strong
outlook for capital values and the forward work schedule. A net 79% of respondents expect
tourism capital values to rise over the next 12 months, compared to just 34% a year ago.
While the rate of growth in Australia’s services exports (such as tourism) has slowed, the
sector still appears to be enjoying robust levels of demand.

Confidence is still elevated in the industrial segment, despite a small pullback from last
quarter’s record level. The industrial segment is reporting a strong forward work schedule over
the next 12 months, led by Victoria, Queensland and New South Wales. This makes sense,
given the strong demand for industrial property coming through in line with the upswing in
infrastructure work across those states.

Elsewhere, it is encouraging to see respondents report greater satisfaction with the

performance of the federal government. This is the first ANZ-Property Council survey since the
release of the 2018-19 Budget in May. The Australian Government’s performance index rose
across most states and territories, with the sole exception of the ACT. This suggests that the
property sector has responded favourably to the Budget. As usual, the challenge is to ensure
that improved sentiment converts into economic activity.