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The future of property in two charts & a podcast

What lies ahead for the property market? Opinions are mixed. A recent survey shows firms in the property sector remain relatively upbeat as the New Year kicks off but experts from ANZ Research are more reserved – particularly when it comes to Australia’s two major population centres.

The most recent ANZ-Property Council Survey showed sentiment at businesses which operate in the property sector is still relatively positive - despite falling from the last quarter. The study showed converging confidence across all states with Western Australia the big mover as belief returns in the mining states. 

“I would definitely say that we've seen the peak of the cycle in terms of growth [in Sydney].”  - Daniel Gradwell

They’re also pretty confident on funding rates too – again in conflict with the experts.

“Despite the solid growth outlook, it is interesting firms in the property sector are not expecting much in the way of interest rate movements this year,” ANZ head of Australian economics David Plank said of the report.

“ANZ Research is forecasting two rate hikes from the Reserve Bank around the middle of the year, as further evidence of wages growth and inflation returning to the target band flows through.”

The ANZ-PCA survey also found increasing confidence on the construction pipeline – with a number of sectors reporting the strongest outlook ever recorded.

And the experts? ANZ economist Daniel Gradwell agrees the strong pipeline of work across each of the residential property, commercial property, and public infrastructure segments means that the outlook for construction activity is encouraging.

But on the residential front he thinks, in Sydney at least, prices might be nearing their limit.

“I think one of the major concerns is the idea that people have taken on more and more debt over the last couple of years that's pushed prices up,” Gradwell told a recent A’n’Z of Economics podcast.  “I think we're basically at the stage now where we're running into affordability concerns.”

You can click below to hear an edited version of the comments – or go to the A’n’Z of Economics Soundcloud page to listen to the full podcast.

“So what we're seeing now is the way house prices have increased in Sydney over the last few years has primarily come because of lower interest rates. Where we are at the stage in a cycle now it's very hard to see interest rates falling even further.”

Gradwell said it’s more likely the next movement in interest rates is going to be up - not good news for people who have recently bought into the market.

Don’t believe the bubble talk, though.

“I think for it to be considered a bubble that's more of an unjustifiable or unsustainable level of prices,” he said.  “But I would definitely say we've seen the peak of the cycle in terms of growth.”

Shane White is senior production editor and Jemma Wight is production editor, bluenotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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