Although remaining mildly in positive territory, levels of confidence in the property and construction industry have plummeted, the latest survey has found.
Expectations for staffing levels and forward work schedules are also extremely subdued, while 12-month expectations for house prices, retail property and tourism related property are negative.
The September Quarter Property Council of Australia-ANZ Property Industry Confidence Survey showed overall levels of sentiment falling seven points from 113 in the June quarter to 106 in the September quarter.
At this level, sentiment remains above the 100 level that separates positive expectations from negative expectations, but opinions are much less buoyant compared to previous quarters.
The survey, which involved responses from more than 3,100 key decision-makers in property and construction, represents a reading of overall expectations for the industry over the next twelve months.
Property Council of Australia chief executive Peter Verwer says the downward movement in expectations is concerning.
“There has been a sudden, downward shift in sentiment in the sector following three consecutive periods of increasing sentiment nationally,” Verwer says. “It is the first time in the series that sentiment has turned downwards.”
Verwer says sharp falls with regard to expectations for staffing levels and forward work are most worrying, while expectations for the national economy have also worsened.
Staffing level expectations, while still marginally in positive territory, have been in decline for four quarters but now appear to have accelerated downward.
He says industry confidence is unlikely to improve unless and until the next interest rate cut occurs.
More positively, however, ANZ chief economist Warren Hogan says the long-term industry outlook is reasonably good, with market fundamentals suggesting a broader commercial property upswing.
“Low vacancy and elevated incentives present considerable upside to effective rents/room rates, particularly in the office, industrial and hotel sectors,” Hogan says. “Moreover, current yields belie the positive fundamentals and will firm as investor sentiment rebounds. A robust economic backdrop will underpin tenant demand, while supply will be constrained by rising development costs and tight credit conditions.”
The latest survey results come amid reasonably positive economic news, with lower than expected inflation figures on Wednesday and the Reserve Bank on Tuesday delivering an upbeat assessment on the state of the economy.
Key findings of the survey are as follows:
- Overall levels of sentiment are down from 113 in the June quarter to 106 in the September quarter.
- Resource states were not immune to the decline, though confidence in Queensland, Western Australia and Northern Territory remains high.
- The ACT was the biggest loser plummeting 16 points to a confidence level of just 85.
- With expectations for debt financing ability plummeting from 95 to 93, respondents are becoming more pessimistic about their ability to obtain funding for large projects.
- As the housing industry calls for measures to boost residential construction, the outlook for residential property is poor. Expectations for house prices (93) plummeted by five points and remain in negative territory after three previous consecutive quarters of gains.
- All asset classes have been affected. Though expectations for retirement living (110) remain firmly in positive territory, and those for commercial and industrial remain marginally in positive territory, capital price expectations over the next 12 months deteriorated for all asset classes. Expectations for tourism and retail property are firmly in negative territory.