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Don't dwell on the myth of a housing construction boom
Topic Started: 4 Jun 2014, 08:27 AM (1,424 Views)
Dr Kinetoscope
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The Reserve Bank of Australia and many private sector analysts have put their faith in the housing sector to help offset the collapse in mining investment. Unfortunately, the current boom appears likely to be fairly short, with more in common with the 2010-11 ‘boom’ rather than growth in the early 2000s.

Building approvals fell by a further 5.6 per cent in April, much weaker than expectations, to be 1.1 per cent higher over the year. Over the past three months, approvals have fallen by almost 15 per cent, which has been largely driven by significant weakness in approvals for higher-density living.

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Approvals for housing -- which has historically been less volatile -- continue to trend upwards at an increasingly slower pace. Approvals for apartments seem to be in free-fall and there is a considerable risk that many of these projects will not come to fruition.

On the upside, apartment projects typically take longer to complete, providing some support for residential investment and the Australian economy over the next few years. On the downside, these projects are far riskier and more likely to be postponed or even cancelled as economic conditions change.

Based on strong population growth, housing investment should improve significantly over the next couple of years, but those expecting construction to drive the Australian economy should probably temper their expectations. The 2010-11 ‘boom’ -- which tracked in an awfully similar fashion to this episode -- resulted in around a 0.2 percentage point rise for residential investment as a share of GDP.

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To put this into perspective, if the Australian economy grows at around 2.5- 3 per cent over the next two years, residential investment would need to rise by over 20 per cent for its share of GDP to rise by 0.5 percentage points. The unfortunate reality is that housing construction is hopelessly outgunned as we try to rebalance our economy away from the mining sector.

High-density approvals also provide a good indication of investor activity (on those rare occasions that investors purchase new rather than existing dwellings), so there are growing signs that investor optimism is subsiding. We will get a better feel for investor activity next week when the ABS releases its housing finance data.

At the state level, the recent weakness has been largely driven by Queensland and, to a lesser extent, New South Wales. However, it is worth bearing in mind that state data can be particularly volatile in the higher density segment. A single large project can shift the data around significantly, making it difficult to interpret on a month-to-month basis.


Last week, the outlook for the Australian economy received a bit of a boost with investment intentions for the 2014-15 financial year a fair bit stronger than most analysts ( including myself) had predicted (Some good news amid Australia’s capex decline, May 29). If that eventuates, a relatively short boost to housing construction will not be so problematic.

But most of the risk to business investment continues to lie on the downside. With China slowing and the iron ore price falling sharply, I expect mining investment to decline at a faster rate than indicated by the investment intentions of mining firms.

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Does the RBA need to consider cutting rates? Not yet -- and not necessarily.

There is no pressing need to cut rates based on the current outlook, but it is time the RBA acknowledged that housing will do very little (if anything) to support economic growth over the next couple of years. Residential construction is simply too insignificant to be the saviour that the RBA wants it to be and we will need incredibly strong exports and household spending to keep the economy afloat over the next few years.

http://www.businessspectator.com.au/article/2014/6/2/australian-news/dont-dwell-myth-housing-construction-boom
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MMM
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Consumer confidence will head down the toilet before much longer, we see how much the bulls confidence has been shattered over the last few months. More so than at any other time on this forum, why , because the majority of mainstream news coming out over the last few months has been extremely bearish, the same news all the sheeple read. Many people don't visit these types of forums, and are not as up to date as we all are here with the state and of things. They mainly hear warm and fuzzy economic and property stories from their friends, who have read the bullshit of vested interests and government liars, telling us that our economy is strong and that the fundamentals are strong and all sorts of bullshit. The fact is the economy is not strong, its piss weak and has never looked worse in living memory now or looking forward.

The fundentals are not strong , again weak as piss, we don't even have any fundamentals anymore , just frrehome grants , near zero interest rates, and encuraging people to use their superfund to leverage into property . These are not fundamentals, they are very desperate measures at very desperate times.

You can all look forward to another interest rate cut in the second half of the year, Im sniffing september.

Yah I hear the bulls say , another interest rate cut comimg. You might its good news , but the reality is far from it. We dont have much further we can drop and the banks will pass on as little as possible. They may then become more desperate a bit further down the line and be forced to lower them more later on.

But the drops will not counter the bad news from here, and any future purchaser then knows the only from hear will be up. Most new mortgage holders are paying interest only, because with prices are so high they only just scrape by with paying the interest on the loan , how will they go with a 2% rise , a 4% rise would only bring rba rates to long term averages. The whole thing has gone well behind a joke in the name of bank profits and government gravy train flowing .

The bulls could only hide behind the bullshit for so long, before the reality came shining through , hard and fast. They can see the economy is collapsing , just as I have told them it would for years, they saw interest go exactly as I have said , when others did not have the slightest clue in the world or offer ANY opinion. Your all experts until it actually comes down to saying something before the event for once. Gutless crap always comes out after the event because most are incapable of thinking for themselves, just cut and paste some warm and fuzzy bullshit and discard all reality.

So you clowns can now clearly see the extreme devastation overwhelming the economy, its now even clearer and more obvious than I thought it would show.

Any more bull dopes left that want to tell us the economy is running along smoothly, idiots.

The fact is, now any bear can debunk any bulls bullshit, I have taught them well over the years, but they have it so easy now, handed to them on a platter, I did not have that just over five years ago , when I tried to explain what would happen way back then. It was like trying to explain that the world was round for the first time, they would not have a bar of it and came out with all the same old shit the bulls used to come out. And then I get banned from my own thread and then it gets shut down in late 2011 after running for two and a half years. Then they ban it from public viewing, because some moderator bulls were shown to be dopes when things started unfolding in 2011. They had no problem with others giving shit when it still looked good for them but when the tables started to turn , they did this shit.

But its all said and done now, I've known for years exactly what would happen , when most of you had not the slightest clue in the world, right Peter. :bye:

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peter fraser
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Perhaps the RBA will agree with you Ted and reduce interest rates by another 1%.

What will that do for your gold price and interest on your savings?
Any expressed market opinion is my own and is not to be taken as financial advice
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MMM
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Same as it will do for your gold and your savings, what will it do to for your property In Brisbane or mine in Sydney. You should of diversified Peter, leveraging up 100% into multiple brisbane office spaces using what equity you had in your Brisbane ppor is not diversity Peter.

See you could not address anything else in my post Peter, just pick out your warm and fuzzy interest rate drop and then have your cheap gold dig as per usual, you dont have much left anymore Peter, your firing blanks now, the bears now it and so do you. All your other bull mates know it too, thats why they have packed up and left. The only ones left whistling dixie are a couple of clowns who dont understand and a debt peddler. And now all we get is the bulls now coming on and posting as guest sock puppets, only to be shot down by the bears anyway. ;)

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Briony and Noel
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We sold our IP in Brisbane, finally. It took over a year to get the price we needed and at the end of the day, after 5 years of holding we came out about even. That does not count the stress mind you. Never again, it was nothing like they promised it would be.
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peter fraser
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MMM
4 Jun 2014, 10:17 AM
Same as it will do for your gold and your savings, what will it do to for your property In Brisbane or mine in Sydney. You should of diversified Peter, leveraging up 100% into multiple brisbane office spaces using what equity you had in your Brisbane ppor is not diversity Peter.

See you could not address anything else in my post Peter, just pick out your warm and fuzzy interest rate drop and then have your cheap gold dig as per usual, you dont have much left anymore Peter, your firing blanks now, the bears now it and so do you. All your other bull mates know it too, thats why they have packed up and left. The only ones left whistling dixie are a couple of clowns who dont understand and a debt peddler. And now all we get is the bulls now coming on and posting as guest sock puppets, only to be shot down by the bears anyway. ;)

Ted the LVR on my offices is 0.4% and that's only a small come and go limit.

The return is infinitely better than gold.

Any expressed market opinion is my own and is not to be taken as financial advice
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Mike
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Briony and Noel
4 Jun 2014, 10:39 AM
We sold our IP in Brisbane, finally. It took over a year to get the price we needed and at the end of the day, after 5 years of holding we came out about even. That does not count the stress mind you. Never again, it was nothing like they promised it would be.
5 years is a short time frame. If you sold now after having 5 years of declines or no growth that was a terrible mistake. Brisbane and QLD should enjoy good price growth over next 18 months to 2 years. You would have made far more money selling in another year or 2.

Don't get into property investment if you are only looking at 5 year time frames, that was your mistake. Property is a long term investment. If you want short term gains buy shares and try your luck.

Edited by Mike, 4 Jun 2014, 02:05 PM.
http://mike-globaleconomy.blogspot.com.au/
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newjez
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Mike
4 Jun 2014, 02:04 PM
5 years is a short time frame. If you sold now after having 5 years of declines or no growth that was a terrible mistake. Brisbane and QLD should enjoy good price growth over next 18 months to 2 years. You would have made far more money selling in another year or 2.

Don't get into property investment if you are only looking at 5 year time frames, that was your mistake. Property is a long term investment. If you want short term gains buy shares and try your luck.
I thought you looked at 12 - 18 months mike?
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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Mike
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newjez
4 Jun 2014, 04:25 PM
I thought you looked at 12 - 18 months mike?
Big difference between property investor and property developer. I am a combination of both.

As an investor I look long term at the investments I hold for that purpose.

As a developer I look for the next 18 months until the developments complete and I sell them.

I do both at the same time, so each investment/development has its own business plan and model for expected returns on worst case, best case and likely outcomes in that time period.
http://mike-globaleconomy.blogspot.com.au/
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Admin
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Construction activity strongest in 9 years: AIG

Michael Roddan and AAP

Activity in Australia's construction sector expanded for the fourth month running in September, according to a survey from the Australian Industry Group, signalling the industry’s strongest pace of expansion in the nine years since the survey’s inception.

The Ai Group performance of construction index rose to 59.1 points in September, up 4.1 points from 55.0 in August.

A print over 50 shows the sector is expanding, while a read below 50 shows it is contracting.

House building was the strongest performing sector with its rate of growth lifting to its highest level so far in 2014. The apartment building market showed continued strength while growth in commercial construction also picked up in September.

The main factors weighing on activity were a lack of public sector tenders and a decline in mining-related engineering construction activity, AiG said, which led to a continued contraction of the engineering construction sector.

Housing Industry Association chief economist Harley Dale said residential construction should further strengthen for the remainder of the 2014/15 financial year.

"The commercial construction sector finally appears to be following the lead of new residential construction, which is another pleasing outcome," he said.

Dr Dale said an increase in the supply of housing might keep a lid on housing prices which have been driven higher by an influx of investors buying existing homes.

In September, Reserve Bank of Australia governor Glenn Stevens raised the possibility of changing regulations to curb risky lending to property investors, which could pose a risk to banking stability and to the economy.

"It will be important for the broader economy that evidence of strong performance in residential and improving performance in commercial construction presents itself throughout 2014 and into next year," Dr Dales said.

"The current elevated focus and uncertainty around the potential implementation of restrictive lending practices, and sweeping generalisations on this subject, are not helpful."

Read more: http://www.businessspectator.com.au/news/2014/10/7/australian-news/construction-activity-strongest-9-years-aig
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