This article is from the Australian Property Journal archive
NATIONAL building commencements will be subdued in 2010 and 2011/12, however the good news is that there will be less pressure on interest rates to go up, according to industry analyst and economic forecaster, BIS Shrapnel.
BIS Shrapnel added that relatively favourable interest rates will allow apartment construction to become a key driver for economic growth over the next two years.
Senior economist Jason Anderson said the Federal government stimulus programs were largely responsible for the strong 15% rebound in the national value of total building commencements in 2009/10.
“First-home buyer numbers are down by 50% over the first half of 2010, compared to the first half of 2009, and non-residential building approvals have trended down sharply over the past 6 months,” he said.
BIS Shrapnel predicts there will be two major hurdles on economic growth in 2010/11. The first is a substantial 27% decline in net overseas migration to 175,000 people, which will constrain retail sales growth. The second is a 3% drop in private sector non-residential construction (non-residential building plus engineering construction), which is considerably worse than the Commonwealth Treasury’s latest forecast for a 7.5% rise.
BIS Shrapnel also forecasts there will be only two rate hikes in 2010/11, with the first coming towards the end of 2010.
Anderson said the relatively favourable interest rates should encourage a recovery in first-home buyer numbers over the first half of 2011 as well as buoy upgrader and investor demand for new dwellings. Home renovation expenditure will show solid growth of 6% in 2010/11.
Apartment projects are also expected to deliver a substantial upside for the national economy during 2010/11, and beyond. Anderson said prospects for a sustained recovery in residential building activity are heavily dependent on demand in New South Wales and Queensland.
“Stamp duty relief for new dwellings in New South Wales is expected to encourage a strong upturn in starts of apartment projects from 2010/11,”
In the non-residential sector Anderson said commencements will drop by 14% in 2010/11 and 5% in 2011/12, reaching the lowest level since 2005/06.
“This outlook is an inevitable consequence of education project stimulus phasing down, but is also due to a slow recovery in the number of major commercial and industrial building projects.
“The overall mix of building and construction activity provides a near-term opportunity for developers of residential projects. Softness in non-residential building should result in more competitive tendering and cost benefits for apartment projects,” he added.
The strongest market will be Northern Territory’s building sector which will record a gain 17% and 3% over 2010/11 and 2011/12 respectively. Residential construction is expected to lift strongly, especially in 2010/11. A modest contraction in non-residential is anticipated over both years.
Followed by Queensland with growth of 8% in 2010/11 and 2% in 2011/12, particularly in the residential sector. Non-residential commencements are anticipated to weaken notably in 2011/12 as spending on education and health projects winds back to more historically normal levels.
New South Wales construction is forecast to grow by 3% in 2010/11 and 8% in 2011/12. However non-residential activity is forecast to weaken. Although the value of commercial building is anticipated to rebound from a very low level in 2009/10, education and health spending are forecast to weaken considerably, as public stimulus winds down.
The Victorian sector will be flat over the next two years with residential construction expected to hold close to steady. As the volume of house and higher density starts in Victoria is currently running at record high levels, little upside is expected to develop over the coming few years.
Activity in South Australia will fall by 7% in 2010/11 before rising 17% in 2011/12. Non-residential construction is anticipated to contract in 2010/11 before expanding significantly in 2011/12, supported by a lift in health-related commencements. Moderate growth in new house construction is forecast, continuing the stable upwards trend in Adelaide dwelling construction over the past decade.
Western Australia will also see a 14% contraction in 2010, before flattening in 2011/12. This weakness will be driven by non-residential construction. Health and education construction are both coming off a very high base in 2009/10, and further weakness in commercial construction is expected.
In Tasmania, construction will fall by 10% in 2010/11 and 2% in 2011/12. Non-residential construction will drive the contraction. Residential construction is anticipated to hold relatively stable at its current robust level.
Finally in the Australian Capital Territory, activity will decline by 14% in 2010/11 and a further 10% in 2011/12 due to residential construction running at a very high level over 2009/10. New dwelling construction is expected to weaken moderately over the coming two years. The level of non-residential construction is also anticipated to fall to a more historically normal level over the next two years.
Australian Property Journal
