The embattled residential building sector is forecast to recover strongly over the next three years, with the catalyst being low interest rates.
However, the strong growth phase won’t extend to the non-residential building sector with only “modest growth forecast” while there will be a contraction for engineering construction as the mining investment boom slows and big resource projects are completed.
Masters Builders Australia (MBA) forecasts the value of residential building work done, in real terms, to grow from $46.2 billion in 2012-13 to $60.9 billion in 2015-16.
Over this same time frame, dwelling starts are predicted to rise to 164,000 in 2013-14, 179,000 in 2014-15 and 183,000 in 2015-16 – more than a decade after dwelling starts peaked at around 175,000 in 2004.
This follows a number of years of contractions with many high-profile building companies collapsing including Kell & Rigby, St Hilliers Construction, Reed Construction, Baseline Constructions and Nahas Construction.
A NSW government inquiry into the sector last year found that one in three company collapses in the state were building companies.
MBA chief economist Peter Jones says the forecasts indicate there is “light at end of a very long tunnel for the residential and commercial building sectors, but does not herald a return to boom era levels”.
The building and construction industry group basis these bullish forecasts on the underlying assumption that low interest rates will work to “release significant pent up demand after a long period of under-building that occurred at the same time as Australia experienced strong population growth”.
The forecasts have been developed by Master Builders in collaboration with Independent Economics.
“The stronger performing states are forecast to be Queensland, New South Wales and Western Australia,” says Jones.
“The key risks to the forecasts are frail consumer confidence, economic uncertainty, asset price volatility and ongoing softness in the labour market.
“The improvement in the residential building outlook comes from a very low base and the challenge remains for policy makers to address supply side inefficiencies and impediments that have contributed to the nation’s growing housing shortfall,” he says.
Non-residential building work done is predicted to decline further in real terms in 2012-13 followed by modest growth in the following years.
Growth is expected to be driven by commercial and industrial building sectors, contrasting with weakness in social and institutional sectors and education related building.
“For non-residential building, strongest performing states are forecast to be NSW, Queensland and Victoria, with industrial, retail and office building leading the way.
“The key headwinds and risks are poor cash flows, low margins and tough lending criteria. Investor confidence also remains low reflecting current economic conditions,” Jones says.
In the engineering construction sector, activity is forecast to increase 5.4% in real terms to $122.1 billion in 2012-13 before falling back 12% to over the following three years to a level of $108.0 billion.
“After very strong growth, engineering Construction activity in the Northern Territory, Western Australia and Queensland are forecast to fall back, albeit remaining at extremely high levels in an historical context. Victoria and Tasmania look set to benefit from stronger infrastructure spending,” Jones said.
During the next 18 months a flood of newly completed apartments will reach the market after years of pent-up demand.
The fleet of removal trucks disgorging furniture at Central Park and other newly completed apartment developments across Sydney's inner city will become an increasingly common sight in the next 18 months.
There are about 6000 apartments due for completion in that time, which experts say will be the highest for almost a decade. But that number could be eclipsed in subsequent years as the dramatic increase in inner-city apartment developments approved since 2011 washes through the system.
Unlike the building boom in Melbourne's inner city, Sydney's central business district and fringe suburbs were largely starved of new apartments for the best part of six years.
This has created a great deal of pent-up demand among buyers, says Robert Papaleo, director of strategy research for property consultant firm Charter Keck Cramer.
''Now that supply is becoming available, purchasers are responding because the alternatives are still scarce in the established [inner-city] housing market,'' he says.
Another independent property expert, Kim Hawtrey, associate director at business forecaster BIS Shrapnel, believes new apartments are now at ''the leading edge of the housing recovery in Sydney''.
During the next 18 months a flood of newly completed apartments will reach the market after years of pent-up demand.
The fleet of removal trucks disgorging furniture at Central Park and other newly completed apartment developments across Sydney's inner city will become an increasingly common sight in the next 18 months.
So in other words, the sydney boom has been put off 'again' for up to 18 months. Boy at this rate the gold coast will have recovered before the nations leading capital.
So in other words, the sydney boom has been put off 'again' for up to 18 months. Boy at this rate the gold coast will have recovered before the nations leading capital.
Probably reach the million dollar median before Sudney does as well
Harry Triguboff’s Meriton group has bought its second Mascot development site this year, adding to a war chest comprising $300 million worth of development sites across Sydney.
Triguboff, Australia’s sixth richest man with a fortune estimated by BRW at $4.95 billion has acquired a 17,150 square metre site at 200 Coward Street, Mascot in Sydney’s southern suburbs for $47 million.
It last sold for $11 million in 1998 when acquired by the Queensland Local Government Superannuation Board, the trustee of LGsuper, a super fund for current and former Queensland local government employees and their spouses.
It comes just a month after Meriton spent $39 million on a North Shore Sydney service station in Lane Cove from Bob Rose’s Rose Group with plans to build a $300 million residential tower development featuring 440 apartments.
The Mascot site on the corner of Coward and O’Riordan Streets currently operates as a multi-unit industrial estate with tenants including chocolate maker Lindt.
An apartment development on the site would overlook Mascot Park with Mascot railway station and town centre just a short walk away.
It was sold by Michael Crombie and Jonathon Canavan of Colliers International following a tender process which closed on June 12 and with the potential for 380 apartments.
Crombie tells Property Observer, while there has been no planning in relation to the site, the expected number of units if a compliant scheme is proposed is around 401 units.
He confirmed that Meriton was the buyer.
“The site has exchanged with a three month settlement date, not subject to anything,” he said.
It has proposed mixed-use residential zoning.
In February this year, Triguboff announced that Meriton had acquired a 31,500 square metre industrial site in Mascot for $100 million from industrial landlord Goodman Group. He plans to build 1,000 apartments on the 19-33 Kent Road site near Sydney airport.
Meriton is currently selling more than 2,000 apartments off-the-plan having spent around $300 million on development sites in the past 18 months”.
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