Australia property CEOs give diverging outlooks as rates rise

CHIEF executive officers of real-estate developers in Australia offered diverging outlooks for their industry, underscoring the uncertainty provoked by rising interest rates.

For Tony Lombardo, chief executive officer at Lendlease, there are positive tailwinds emerging as immigration that was shut off during the pandemic returns and boosts demand for real estate. On the other side, higher rates and inflation are causing elevated levels of uncertainty, according to Darren Steinberg, chief executive officer of Dexus.

“It’s one of the toughest operating environments of my career,” Steinberg told a conference in Sydney. 

As rapidly increasing interest rates drove down home prices by the most since 1983 in August, investors are debating how much heavily indebted households can withstand. Even after the drop, property prices remain above pre-pandemic levels and leading banks have said they expect defaults in the A$2 trillion (S$1.9 trillion) residential mortgage market will be contained by high household savings.

The ambiguous outlook was also highlighted by the Reserve Bank of Australia’s head of domestic markets. Rising rates in Australia will weigh on property prices and curb borrowing, but there’s “considerable uncertainty” about the size and timing of their impact on the housing market, Jonathan Kearns said on Monday (Sep 19). 

For Jo Masters, chief economist at Barrenjoey Markets, it remains very unclear when inflation will peak and that makes valuing assets “incredibly difficult”, she said. 

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Household buffers remain one key discussion point as data shows lending for new home loans slowed faster than estimated. Australia’s record debt-to-income ratio of 187.2 per cent amplifies the risks of rising interest rates. 

For Lendlease’s Lombardo, there’s enough of a cushion to withstand the adjustment to higher levels of repayments. The healthy balance sheets of households, a point highlighted by Reserve Bank officials in recent months, mean borrowers have the capacity to cope with even higher rates, Lombardo said. 

“There are tailwinds” that are building, including a return of migrants, he said. “As immigration gets turned back on demand will recover.” BLOOMBERG