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PCA ANZ Property Confidence Survey March 2013.pdf

PCA ANZ Property Confidence Survey March 2013.pdf

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02/15/2013

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ANZ RESEARCH
AUSTRALIAN PROPERTYAUSTRALIAN ECONOMIC UPDATE
PROPERTY INDUSTRY CONFIDENCE INCREASES ON RBA RATE CUTS ANDMORE STABLE ECONOMIC OUTLOOK
17 JANUARY 2013CONTRIBUTORS
David CanningtonSenior Property Analyst
+61 3 8655 9036David.Cannington@anz.com
Paul BraddickHead of PropertyResearch
+61 3 8655 9022Paul.Braddick@anz.com
 
Property industry confidence strengthened in the March quarter, increasing on amore stable outlook for the global and Australian economy, compared to theprevious quarter. Looking ahead, the mining investment boom is approaching apeak and the Australian economy will become increasingly dependent on acyclical rebound in non-mining investment in the years ahead, with the propertysector a key driver of this transition.
 
The latest Property Council of Australia-ANZ Property Industry ConfidenceSurvey reveals the improved economic outlook, combined with further RBA ratecuts, are having a positive impact on the property sector outlook. The PropertyCouncil of Australia-ANZ property industry confidence index increased by 5pts inthe March quarter (107 compared to 102 in the December quarter), following a4pt
decrease 
in the December quarter.
 
The March quarter survey polled more than 3,000 property industryprofessionals – the most comprehensive survey of Australian property industryviews – and revealed stronger expectations for house price growth and positiveexpectations for property construction. This result reflects recent growth inbuilding approvals and tight market demand/supply fundamentals in bothcommercial and residential property.
 
Property industry confidence increased in all states and territories exceptTasmania and the ACT in the March quarter. The states with the greatestexposure to the mining industry (WA and the NT) continued to report thehighest confidence in level terms, followed by NSW. Victoria, Tasmania and theACT were the only states/territories to report ‘negative’ confidence.
FIGURE 1. PROPERTY INDUSTRY CONFIDENCE STRENGTHENS
Property industry confidence index*
708090100110120130140150160NSWVICQLDSAWATASNTACTAUS
   I  n   d  e  x
Dec qtr 2011Mar qtr 2012Jun qtr 2012Sep qtr 2012Dec qtr 2012Mar qtr 2013
* Data for December 2011 and March 2012 show expectations for "the next quarter". Data since June quarter show expectations for "the next 12 months".
 
Sources: Property Council of Australia, ANZ
 
Australian Economic Update / 16 January 2013 / 2 of 6
MORE STABLE GLOBAL ECONOMIC OUTLOOK BUOYS PROPERTY SENTIMENT
The Property Council of Australia-ANZ property industry confidence index increasedby 5pts in the March quarter (107 compared to 102 in the December quarter).Property industry confidence in the March quarter was buoyed by a more stableoutlook for global economic growth, combined with further official interest ratereductions in October and November.The states/territories with the greatest exposure to the mining sectors - WA (131)and the NT (131) - showed the strongest property industry confidence across statesand territories, followed by NSW (112). Victoria (99), Tasmania (83) and the ACT(90) were the only states/territories to report ‘negative’ confidence.
FIGURE 2. STATE/TERRITORY ECONOMIC GROWTH EXPECTATIONS CONVERGE
State/territory economic growth expectations
-80-60-40-20020406080100NSWVICQLDSAWATASNTACTAUS
   E  x  p  e  c   t  a   t   i  o  n  s   i  n   t   h  e  y  e  a  r  a   h  e  a   d   (  n  e   t   b  a   l  a  n  c  e   )
Jun qtr 2012Sep qtr 2012Dec qtr 2012Mar qtr 2013
   L  o  w  e  r  g  r  o  w  t   h  e  x  p  e  c  t  a  t   i  o  n  s   H   i  g   h  e  r  g  r  o  w  t   h  e  x  p  e  c  t  a  t   i  o  n  s
 
Sources: Property Council of Australia, ANZ
Property industry confidence across states and territories largely reflects differingexpectations for state economic growth. The highest proportion of respondentsexpecting state economic growth to be higher in the coming year were also in the NT(54%) followed by WA (39%). In contrast, the net balance of respondents expectstate economic growth to be
lower 
in the coming year across all other states andterritories, with state economic expectations deteriorating in the March quarter inboth Tasmania (68% expect state economic growth in the coming year to be lower inthe March quarter survey compared to 60% in the December quarter) and the ACT(53% in the March quarter survey compared to 45% in the December quarter).
HOUSE PRICE GROWTH EXPECTATIONS STRENGTHEN
Property industry expectations for house prices in the coming year increased in theMarch quarter buoyed by increased housing sales and improved affordability. Lookingahead, the combined impact of tight underlying demand/supply housing marketfundamentals, expectations of further rate cuts and a steady medium to long-termdomestic economic outlook have improved property industry residential price growthexpectations. However, despite improved sentiment and affordability, the prevailingsense of caution in the household and financial sectors will limit the ‘normal’ cyclicalrebound in house prices.The net balance of respondents expected house prices to be higher in the next year inNSW, Queensland, WA and the NT. The most optimistic expectations for house priceswere reported in the NT (72% expect prices to be higher in the next year), followedby WA (55%) and NSW (36%).
 
Australian Economic Update / 16 January 2013 / 3 of 6
FIGURE 3. HOUSE PRICE GROWTH EXPECTATIONS IMPROVE
House price growth expectations*
-40-30-20-10010203040506070NSWVICQLDSAWATASNTACTAUS
   A  n  n  u  a   l   h  o  u  s  e  p  r   i  c  e  g  r  o  w   t   h  e  x  p  e  c   t  a   t   i  o  n  s   (  n  e   t   b  a   l  a  n  c  e   )
Dec qtr 2011Mar qtr 2012Jun qtr 2012Sep qtr 2012Dec qtr 2012Mar qtr 2013
* Data for December 2011 and March 2012 show expectations for "the next quarter". Data since June quarter show expectations for "the next 12 months".
   N  e  t  p  r   i  c  e   d  e  c  r  e  a  s  e   N  e  t  p  r   i  c  e   i  n  c  r  e  a  s  e
 
Sources: Property Council of Australia, ANZ
BUILDING OUTLOOK IMPROVES, BUT RECOVERY WILL BE RELATIVELYSUBDUED
Residential and non-residential building approvals remain at cyclically low levels,presenting substantial
potential 
upside for building activity, particularly with interestrates expected to decrease further in the coming year. However, a positive outlookfor building activity remains weighed down by soft economic expectations, planningconstraints and tight credit conditions. While the net balance of Property Council of Australia-ANZ Survey respondents expects building activity to increase in the comingyear at the national level, the construction outlook is strongest for the residentialsegment, followed by industrial and tourism. The ACT reported the weakestconstruction outlook for the commercial office and retail segments, with 34% and24% of respondents respectively expecting construction activity to decrease in thecoming year.Historically, strong cyclical upturns in dwelling investment have usually beenassociated with solid growth in house prices. Given the squeeze on developer profitmargins in recent years, we believe rising house prices are a pre-requisite for anysubstantial recovery in new dwelling building activity. However, softening economicconditions and rising unemployment in some markets (including Melbourne, Adelaide,Hobart and Canberra) will cap any potential recovery in house prices. In addition,market impediments (including approvals processes, developer contributions and landrelease etc) are widely recognised as problems, moves to redress these issues havebeen to date been insufficient to significantly boost activity.

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