Lessons from a two-speed property market

The stark divergence between the residential and commercial property segments in Australia continues, according to ANZ Senior Economist Daniel Gradwell, driving two-speed expectations for the outlook on the sector.

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Speaking on video and podcast following the release of the ANZ-Property Council of Australia Report Is the Australian Housing Market Over the Hill? Gradwell said confidence in commercial property was helping balance out softening residential sector expectations.

"Confidence in the commercial property sector is sitting at the highest [level] since the ANZ-PCA survey started.” – Gradwell

“We’ve seen a pretty sharp collapse in confidence around the residential sector and that’s consistent with…falling prices, weaker clearance rates and housing credit starting to dry up,” he said.  

“But on the other hand, the good news from the survey is that confidence in the commercial property sector is sitting at …the highest [level] since the survey started about seven or eight years ago.”

Amidst an overall sense of confidence, the ANZ-PCA report showed ongoing credit tightening and macro-economic factors such as immigration and unemployment levels are poised to drive change across the property market over the next 12 months.

General Manager at VIMG Joe Kougaz said the softening residential outlook was having an effect on the market.

“We’re actually seeing…less and less purchases on the market, especially investors who are willing to dip their feet in market,” he said. “We’re finding there is a lot of owner-occupiers in the market but there is this underlying question whether they are going to get the funding. Consumer sentiment is really, really down at the moment.”

There is some cause for optimism however.

“Unemployment’s very low, we’re getting a huge amount of immigration through as well,” Kougaz said. “So I think the underlying factors are just going to keep on supporting… the housing economy.”

Gradwell said there were further divides in the outlook the deeper analysis went into the residential market.

“Something we talk about quite a bit in the sense that there's markets within markets,” he said. “Even though we're seeing prices in places like Sydney and to a lesser extent Melbourne drop off at the moment that's not consistent across all of Australia.

“Plenty of other capital cities and especially some of the regional areas are still performing very well.”

David Oudshoorn is State Director, Property – Business & Private Banking, ANZ 

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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