Commercial property withstanding residential ‘collapse’

Reflecting on the findings of the latest ANZ-Property Council survey, Mr Gradwell told ANZ’s Bluenotes podcast that despite a drop in confidence in the residential property market, confidence in the commercial property sector is sitting at a record high.

“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,” Mr Gradwell said.

“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.

“We’re seeing some strong growth there in sectors like industrial property and the tourism sector in particular.”

The survey found that capital value expectations in the industrial sector increased by 2.7 index points, from 32.5 in May to 35.2 in June, and by 3 index points in the tourism sector, from 36.1 to 39.1.

Construction activity expectations also rose in both segments, from 39.9 to 42 in the industrial sector, and from 52.2 to 54.8 in the tourism sector over the same period.

Borrowers struggling to secure credit

However, also speaking on the Bluenotes podcast, general manager at property development company VIMG Joe Kougaz highlighted the weakness in the residential market and made particular reference to the tightening in lending conditions.

According to CoreLogic’s analysis of housing finance data from the Australian Bureau of Statistics (ABS), owner-occupied lending has dropped by 1.8 per cent since the peak in November 2017, with investor lending falling by 27.5 per cent since its peak in April 2015.

“We’re actually seeing less and less purchases on the market, especially investors who are willing to dip their feet in the market,” Mr Kougaz 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 down at the moment.”

Mr Kougaz also observed that many prospective borrowers are seeking credit alternatives from third-tier lenders but are not proceeding to settlement.

“We’re finding a lot of [borrowers] are going to third-tier lenders, and they’re offering interest rates anywhere between 6 and 7.5 per cent, but a lot of [borrowers] are actually saying ‘no we’re just not going to go forward with that’,” the GM added.  

Despite concerns over a prolonged downturn in the credit and housing space, Mr Kougaz expects strong underlying economic conditions and further population growth to re-stimulate demand in the residential market.

“Unemployment is very low, [and] we’re getting a huge amount of immigration through as well,” Mr Kougaz said.

“I think the underlying factors are just going to keep on supporting [the] housing economy.”

[Related: Housing finance sentiment ‘worst on record’]