Property market demonstrates resilience, as leading indicators stabilise
Improving sentiment, ongoing fiscal and monetary stimulus, and bank lending constraints are providing the backdrop for the continued flow of attractive senior lending opportunities.
The Australian economy contracted during the first quarter of 2020, giving the slowest through-the-year growth since September 2009, but there was an inflection point during May, driven by the effective containment of COVID-19 combined with the substantial, coordinated and unprecedented easing of fiscal and monetary policy. The success in limiting the rate of new infections has brought about an earlier than expected easing of restrictions, leading to a strong rebound in consumer and housing-related sentiment. Despite a small 0.4% fall in housing prices nationally over May, conditions are unlikely to be as negative as initially feared. CoreLogic has noted a number of positive indicators, including a 18.5% rebound in transaction activity (after falling 33% in April), a recovery in listing volumes and improving auction statistics (clearance rates are up from 30.2% in late April to 62.7%).
The improving sentiment has translated to rising enquiry levels at our loan projects, while settlements are proceeding in line with expectations at stable price levels. Housing supply also continues to moderate, and the value of residential building construction fell 1.6% in the March quarter to be down 16.1% from the June 2018 peak, while dwelling approvals fell a further 1.8% during April led by an 8.9% fall in unit approvals. These moves will further support housing market stability, while the moves by banks to tighten lending processes has resulted in a rising level of lending opportunities being presented.
Going forward, fiscal and monetary policy are likely to remain accommodative. Initiatives such as a possible extension or refinements to JobKeeper, government grants for home construction and renovation and the fast-tracking of infrastructure and other construction projects, will support the construction sector and employment more generally. The RBA has also confirmed its commitment to full employment and inflation and yield target, suggesting official interest rates are likely to remain low for the foreseeable future. These conditions will continue to support the strategy of lending at conservative LVRs against quality assets.