Property Council Victoria executive director Jennifer Cunich said sentiment was weakest for the state?s residential property market.

Property Council Victoria executive director Jennifer Cunich said sentiment was weakest for the state's residential property market.

PROPERTY sentiment in Victoria has turned sour and is the second worst in the country, as the poor global economic conditions and lack of access to finance dampen the outlook, according to industry research.

The Property Council of Australia-ANZ Property Industry Confidence Survey showed Victoria moved from a score of 100 in the September quarter to 97 in December. A score of 100 on the index is neutral. The survey polled 2800 Australian property industry professionals in December.

The latest result placed Victoria as the second-lowest mainland capital for sentiment. It showed Victoria was below the national benchmark, with 46 per cent of Victorians believing the state's economic growth would weaken over the first quarter of this year, compared with 44 per cent of respondents nationally.

Property Council Victoria executive director Jennifer Cunich said sentiment was weakest for the state's residential property market, with 61 per cent believing residential capital values would decrease over this quarter.

Overall, respondents were more worried about global economic conditions than the domestic economy, with 53 per cent indicating global economic conditions would drive their business decisions, followed by the availability of debt finance (44 per cent).

In contrast, 44 per cent said domestic economic conditions would influence their decision-making. Planning legislation was the single greatest government-related impediment (18.1 per cent).

ANZ's head of property research, Paul Braddick, said the shift reflected a softer economic climate in Victoria. ''After rising strongly in recent years, Melbourne house prices have eased, with the median price down 6.3 per cent in the year to November,'' he said. ''Despite soft near-term market expectations, underlying tightness in Victoria's housing market should protect house prices from significant falls.''

The survey indicated a moderately negative near-term outlook for Victorian commercial property capital values. ''However, with tight fundamentals, we see significant upside to commercial property values as rents rise and yields compress,'' Mr Braddick said.

Ms Cunich said the downturn in sentiment should worry the Victorian government. ''When we released the results of the previous survey we warned the government the property industry was concerned about business taxes and the cost of construction,'' she said. ''We warned the government that cracks were appearing in the Victorian economy and serious challenges were looming. This survey proves we were right.''

Ms Cunich urged the government to work closely with the private sector to turn this sentiment around.