According to the recently published ANZ/Property Council Survey for March quarter 2015, Australian property continues to lead the broader economy. While that’s predicated largely on the buoyant residential sector, the commercial sector reported ‘expectations for positive capital growth and commercial property construction in the year ahead’ – good news for building services.
‘Despite property sector confidence easing moderately in the March quarter, confidence levels remain only slightly lower than the recent peak in March 2014. The national property confidence index eased moderately to 132 (from 135 in the December quarter). In comparison, broader business confidence has fallen sharply in recent months, reflecting the combined negative impact of headlines surrounding declining commodity prices and a weaker federal government budget position,’ said the Survey’s press release.
‘Nonetheless, softer property sector confidence bears close watching in the coming quarters given the importance of “animal spirits” in supporting market sales, particularly with respect to property investors. A factor that could force the issue in 2015 is the potential for changes to government housing policy with both the Financial System Inquiry Murray Report and APRA’s review of Australian residential mortgage lending recommending tightener housing investor policy.’
The ANZ economists believe that despite a relatively positive outlook for the property sector, the RBA will hold interest rates for an extended period of time with the first hike pencilled in for November 2015. However, they acknowledge the near-term risks are more skewed towards a cut rather than a hike in the first half of 2015, particularly if the unemployment rate increases sharply or the Australian dollar doesn’t sustain its recent depreciation.
Commercial property market sentiment eased in the Survey but with some positive reservations. It revealed that despite continued soft market fundamentals as reflected in elevated vacancy rates, weak net absorption and high tenant incentives, the property sector reported expectations for positive capital growth and commercial property construction in the year ahead.
‘Solid foreign and domestic investor demand for prime grade Australian commercial property is driving downward pressure on cap rates in the major Eastern Sea Board capital cities. While the likelihood of higher capital costs will challenge investor appetite for commercial property going forward, solid global capital flows, a heightened appetite for yield and strong foreign demand for Australian assets are likely to support investor interest in Australian commercial property for some time yet.’