
Rate rises a blow to property confidence
Confidence across the property sector has plunged, along with concerns about access to debt, a flagging construction pipeline and falling asset prices as worries about the state of the economy worsened, according to the latest ANZ/Property Council survey.
Firms are now the most downbeat about the economy that they have ever been outside of the worst of the pandemic in 2020, and are particularly negative about the availability of debt finance.
But mitigating the broader sense of negativity is the anticipation from property companies of positive forward work and workforce projections off the back of their own solid pipelines.
“This pessimism seems overdone given how optimistic firms are about their own work schedule and staffing levels,” ANZ senior economist Felicity Emmett said.
With 750 respondents across the property sector, the quarterly survey was conducted between June 6 and June 22, a period that may have clouded sentiment more than usual.
At that time, market expectations of the official cash rate rises by February next year had surged from around 1.3 per cent earlier this year to 4.2 per cent by June.
They have since eased back somewhat with the market factoring in 3.5 per cent as the peak by early next year.
“It was during the period that people became cognisant that this is not just going to be a modest rise in the cash rate. It’s going to have to be a fairly material rise in interest rates to get on top of inflation. That really put the frighteners on some of the respondents,” Ms Emmett told The Australian Financial Review.
“Accordingly, their expectations for economic growth have really taken a hit. It is firmly in negative territory and the lowest it’s been outside of the pandemic period.”
The survey’s overall confidence index dropped 19 points nationally in the June quarter, yet remained in positive territory at 118 index points and
slightly below the long-term average of 124 index points. A score of 100 is considered neutral.
“Clearly, construction costs and supply chain issues are weighing down the survey results,” the Property Council’s chief executive, Ken Morrison, said.
“Sector by sector, there are different trajectories however. Hotels are continuing a strong rebound out of the depths of COVID-19, in construction.
“The residential sector is continuing with a sharp decline in construction expectations. This decline is significant for the public policy framework around housing supply and affordability.
“With housing supply expected to fall so sharply from levels that were already a concern to forecasters, that will come back to bite in housing affordability.”
Unsurprisingly, expectations for capital growth in the residential sector over the next 12 months have turned negative, the survey shows. However, the outlook for capital growth in the office and retail sectors has also worsened considerably.
Ms Emmett noted that this week’s 50-basis-point hike had been mostly expected, with the broader market reining back forecasts on where the peak rate might land.
“At the margin, that’s a positive. But we need to be realistic about the outlook,” she said.
“We’re coming from a period where interest rates were at emergency lows and asset prices benefitted from those very low interest rates.
“As the RBA removes some of that stimulus we’re likely to see asset prices come back. We’re seeing that in residential, we’re seeing that in the stock market. We can expect the property market to go through a period of adjustment as interest rates adjust to something more normal.”