Confidence levels in Australia’s property sector have climbed to new highs and expectations are building for a bumper year ahead.
The Property Council and ANZ Banking Group’s (ASX:ANZ) quarterly Property Industry Confidence Index has recorded its strongest read in its four year history.
ANZ’s Chief Economist Warren Hogan says, “A buoyant property sector is leading the broader economy out of the gloom of recent years, bolstered by low interest rates and solid investor demand for residential and commercial property.”
Property Council of Australia CEO Peter Verwer says, “Positive expectations about house price growth and significant increases in residential construction activity across the nation are driving a strong upturn in confidence for the property industry”.
The Property Industry Confidence Index jumped to 140 points in the three months to March 2014, up 8 points from the three months to December 2013. The Property Industry Confidence Survey claims housing remains at the early stages of a solid cyclical upturn and, despite talk of a house price bubble, these house price gains are being driven by improved housing affordability, the release of pent-up sales demand and some ‘catch up’ following earlier price falls.
Despite the property price gains Mr Hogan has warned Australia will experience below-trend growth over the next 12-18 months which will set the nation up for an extended period of low interest rates.
Property outlook interview Michael Blythe, the Chief Economist of Australia’s biggest mortgage lender Commonwealth Bank of Australia
(ASX:CBA), forecast a low interest rate environment will prevail when he spoke to FNN over the week and offered his outlook for Australian property over the year ahead.
Should interest rates remain steady as your forecast, how will the property sector fare?
Michael Blythe: We’ve got the classic combination there of improving affordability, courtesy of those rate cuts that we have had, at a time when the fundamental demand for housing is very strong. The Australian population growth rate is picking up at the moment, partly because the migrant inflow is accelerating again. Combining that, as I saw, with low interest rates and a bit of momentum there in house prices, and you’ve certainly got a backdrop there for further increases coming through over the next twelve months.
Australian property prices rose at the fastest pace in four years in 2013, jumping almost 10 per cent. Where do you see prices heading in 2014?
Michael Blythe: This is one of the difficult sort of balancing acts that policy makers are going to have to try and achieve this year. They want some sort of increase in house prices coming through, because it does help stimulate the economy. Equally they don’t want to see a return to debt driven growth and rising household leverage. So I think policy makers would be happy if house prices grew something like 5-6 per cent this year, in line with broader income growth. I think prices will run a little bit ahead of that – 8 to 10 per cent looks a reasonable sort of outcome at the moment.
Which factors or states do you think will drive these gains?
Michael Blythe: I think it largely comes down to that demand and supply story. There are some states like New South Wales where we’ve under-built over the last few years and that’s where some of the demand pressure is coming through in prices.
Equally other states like Western Australia we are seeing quite rapid growth in population there. And that is something that is going to support the house price story there, even if the mining side of the economy is turning down.
Commercial property sector
The Property Council and ANZ Banking Group’s
(ASX:ANZ) Property Industry Confidence Index shows commercial property market sentiment also improved in the March quarter 2014. The survey shows price expectations rallied in the quarter - with all sectors apart from office reaching record highs.
Finbar Group Limited
(ASX:FRI) has forecast its half year net profit is expected to rise while its annual net profit looks to come in slightly lower than last year. The West Australian property developer has also announced a new town planning scheme has increased the end value of a project it is working on in the Pilbara region of Western Australia.
Dexus Property Group
(ASX:DXS) has boosted the value of five of its properties by almost $60 million. The real estate investor says the gain reflects the positive impact on capital values as a result of leasing success. Dexus and Canada Pension Plan Investment Board are currently pursuing Commonwealth Property Office Fund
(ASX:CPA).
