The robust real estate sector has come under a shadow following two reports painting a less rosy picture. Australian building approval sank more than expected in September while property price growth slowed in October.
Building approvals hit 13-month low
Building approvals hit a thirteen-month low in September. The Australian Bureau of Statistics reports buildings approvals fell 11 per cent to 15,004 compared to expectations of a 1 per cent fall. Westpac Banking Corporation (ASX:WBC)
says the worse than anticipated figures show a turn in the cycle from an apparent peak at the start of the year. On the flipside the lender predicts dwelling construction is likely to remain strong as the previous backlog of approvals comes through.
Pace of dwelling value growth slows
Australian dwelling values rose in October but with mixed results across the states. RP Data CoreLogic reports dwelling values rose 1 per cent in October and were 2.2 per cent stronger over the three months to October. In the year to October values rose 8.9 per cent, down from an annual growth rate peak of 11.5 per cent in April. In the month of October the only three capital cities to post stronger home values in October were Melbourne, Sydney and Brisbane.
Melbourne, up 1.9%
Sydney, up 1.3%
Brisbane, up 0.6%
Perth, down 0.1%
Darwin, down 0.4%
Adelaide, down 1.1%
Canberra, down 2.3%
Hobart, down 2.4%
RBA keeps rates at record low
Australia’s key interest rate has stayed on hold for the 15th straight month and third straight Melbourne Cup day. The Reserve Bank of Australia (RBA) kept the official cash rate at record low of 2.5 per cent at its November meeting and confirmed its neutral policy bias. Looking ahead the central bank has again affirmed the most prudent course is likely to be a period of stability in interest rates.
Central bank eyes hot property sector
Australia’s central bank has noted dwelling prices have continued to rise and credit growth has picked up in recent months in lending to investors in housing assets. The RBA has previously sounded the alarms on the sector and FNN asked AMP Capital Investors Chief Economist Dr Shane Oliver why the central bank is concerned:
“There’s no doubt the Reserve Bank has become concerned, six months ago they weren’t, now they’re worried that the pace has become a bit too strong, particularly in Sydney and they’re particularly concerned that the rise in the share of loans going to investors, which is now around 45 per cent, is a sign that the market has become a bit too speculative. The reason they don’t want that is because if it keeps going up and up and up one day it might come crashing down the other side and they just want to cool it down. They want the property market to reasonably solid because that will help the economy but they just want it to be a bit slower than it has been.”
Australian auction results
As the Melbourne Cup Carnival ramped up at Flemington Racecourse Sydney recorded an 82 per cent clearance rate from 883 properties for auction, Melbourne cleared 80 per cent from 132 properties, Brisbane had a 48 per cent clearance rate from 142 properties listed and Adelaide cleared 61 per cent from 104 listed auctions.
Major development projects
The battle for the Queen’s Wharf Brisbane Project is heating up with both Echo Entertainment Group Limited (ASX:EGP)
and Crown Resorts Limited (ASX:CWN)
having now submitted bids, as part of separate consortiums, to develop an entertainment precinct and integrated resort at the site.
The New South Wales Government has selected private hospital operator Healthscope Limited (ASX:HSO)
as the preferred bidder for the new Northern Beaches Hospital in Frenchs Forest, Sydney. Construction is expected to start early next year and the hospital is set to open in 2018.
Listed property stocks
Property developer Stockland (ASX:SGP)
has affirmed its annual earnings per share growth up to 7.5 per cent, underpinned by new projects launched over the last financial year and positive market conditions, particularly in Sydney and South East Queensland.
Diversified property group GPT Group (ASX:GPT)
has upgraded its annual earnings guidance to at least 4 per cent earnings per share on the back of high activity across its portfolio of assets over the September quarter.