Residential property starts recovery, but commercial outlook cloudy

Finally some good news for the property sector, with residential property showing signs of starting something of a comeback.

Finally some good news for the property sector, with residential property showing signs of starting something of a comeback.

Australian Bureau of Statistics data reveals housing finance increased in October – the first rise since January.

Finance approvals to owner-occupiers rose by 1.3% in October, or 0.5% excluding refinancing. The rise follows a 27% drop in finance over the past eight months. Investors are also moving back into the market, with the value of lending to residential property investors rising 0.7%.

Westpac senior economist Andrew Hanlan says the Reserve Bank’s decision to reverse the official interest rate will help kick-start a housing recovery in 2009.

“The housing sector is set to recover – at least partially – in response to the RBA cutting interest rates,” Hanlan says.

“The October housing finance figures are the first installment in that recovery process.”

A number of property experts also believe the residential market is on the rise. Lang Walker, executive chairman of Walker Corporation, told The Australian that the first-home owner’s grant and falling interest rates will help the market.

“The glimmer of hope is in the lower end of the residential market, which should kick in again towards the middle of next year.”

But the news isn’t so great for the commercial property sector.

Experts say the lack of credit, coupled with the levels of corporate debt, will make financing large property projects extremely difficult.

Wal King, chief executive of Leighton Holdings, says that “there’s still great amounts of money around, pension funds, sovereign wealth funds, but no one will commit to the long term”.

King told The Australian that next year will see even tighter restraints on credit. “The big question is how much will the banks clamp down. International banks are paring back their activity here, increasing the stress on liquidity.”

But Colonial First State listed property funds head Darren Steinberg says falling interest rates will help start up the property market. “If you can buy good property soon, you will look pretty clever in 12 to 24 months’ time.”

Daniel Grollo, chief executive of Grocon, told The Australian Financial Review he also sees a silver lining.

“There are some good opportunities in the property sector. You can see them out there. The question is when are they going to start transacting. It’s not for a while, but it’s not far away.”

Related stories:

• Commercial property feels the squeeze
• Gerry Harvey warns of commercial property chaos