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A tale of five cities

The December quarter ANZ-Property Council report confirms sentiment in the property sector hasn’t just fallen sharply - it’s at its lowest level in two years.

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The decline is evident across Australia and is at its most severe – and talked about – in Victoria and NSW. Once you look outside these two states however the story is a little different.

" Whilst national sentiment is challenging at the moment, South East Queensland has the right fundamentals in place for future growth”

The 12-month outlook for residential property prices and construction are weak in New South Wales and Victoria where construction sentiment is down for the first time in this survey’s history.

Elsewhere sentiment is looking more positive.

Residential

The difference between residential property sentiment in Victoria and NSW compared with other states and territories reveals the starkest divergence in sentiment across the states since the survey commenced in 2011.

It’s not surprising the outlook is better across other parts of the country. Borrowers in cities outside Sydney and Melbourne are not as highly leveraged because house prices are not quite as high. For the same reason they’re also less sensitive to tightening credit conditions.

In Queensland specifically, population growth is benefiting the property landscape, particularly in the state’s southeast. Despite a challenging credit environment, good-quality residential property is still available and sought after, according to Brook Monahan, Founder and Managing Director of Brisbane-based boutique property developer Mosaic Property Group.

“Whilst financing at the front end can be challenging for those who are funding projects and slower for purchasers at the buying end, the local owner-occupier market is strong, especially in coastal locations,” Monahan says. “The rental market is also holding up much better than many perceive and residential vacancy rates are now declining.”

In contrast to the more-pessimistic story in Victoria and New South Wales, he suggests, the residential and commercial property opportunities in South Eastern Queensland are driving a “common narrative… that things are [now] moving in the right direction” in the sunshine state.

Construction

Construction sentiment is similarly better outside of Victoria and New South Wales. Nowhere is this more evident than in South Australia which was the only state to post an increase in construction expectations in the December quarter. With a record backlog of work remaining in the state, there’s $1.4 billion worth of housing currently under construction. This reflects more positive economic and business sentiment generally in South Australia.

Western Australia and the Australian Capital Territory reported positive construction outlooks as well. This is important because we know the construction sector has large multiplier impacts through the economy. This will support demand for not just construction workers and equipment and material suppliers but also a range of professional services such as the legal and financial sectors.

In Queensland, while the pipeline of work has shrunk nearly 15 per cent over the past 18 months, the decline has been arrested to a degree by population growth (mainly via immigration from other states, especially New South Wales) and this is helping stimulate demand for new commercial and residential property.

Monahan is a big believer in fundamentals, suggesting good quality construction projects now have a better opportunity to get off the ground than they have previously, at least partly due to a lessening in competition, with fewer project launches taking place, particularly in Brisbane.

“We often say ‘sentiment may win the battle but fundamentals win the war’,” he says. “In this regard we believe that whilst national sentiment is challenging at the moment, South East Queensland has the right fundamentals in place for future growth.”

Daniel Gradwell is a Senior Economist at ANZ

Brad Williamson 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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