New homes market tipped to lead rebound in building sector
BIS Shrapnel is forecasting that the value of total building starts at the national level will rise in 2013-14, the first time in three years, driven primarily by a recovery in the new homes market.
But the improvement won't be broad-based, with non-residential building expected to "drift sideways", with the exception of commercial and industrial markets.
The value of total building starts is expected to rise 3 per cent this financial year, after falling an estimated 1 per cent in 2012-13.
It fell 1 per cent in 2011-12 and plunged 11 per cent in 2010-11, according to BIS Shrapnel's Building Industry Prospectus.
"The market is performing better than expected and things aren't quite as depressed as people may feel," said Robert Mellor, managing director of BIS Shrapnel.
"But there are big differences between sectors and between the states. It really depends on where your exposure is."
NSW is expected to put in the strongest performance with 13 per cent growth in 2013-14, followed by South Australia with 8 per cent and Queensland with 7 per cent.
Victoria, conversely, is expected to act as a "minor drag" with a 2 per cent decline. And as the mining boom fades, Western Australia will see a decline of 6 per cent.
Mr Mellor said it was also now clear that a residential property upturn was under way, with population growth creating problems in NSW, Queensland and WA.
The number of dwelling starts is expected to rise 8 per cent in 2012-13. It is forecast to rise another 2 per cent this financial year.
NSW will be the standout performer with a 12 per cent rise expected in 2013-14. "NSW and WA are quite strong at the moment. Elsewhere things are still weak and in some cases the fundamentals don't justify a recovery yet," Mr Mellor said.
Victoria would see dwelling starts fall 10 per cent, a worse result avoided only by an increase in public construction. "The situation in Victoria is different . . . because it's come off the biggest boom you've ever seen only two years ago," he said.
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BIS Shrapnel is forecasting a modest recovery in the construction industry in 2013–14, with the value of total building starts rising about 3% nationally — the first increase in three years — driven mainly by a rebound in the new homes market.
The report says a residential property upturn is underway, supported by population growth in states such as NSW, Queensland and Western Australia, which is boosting demand for new housing and driving the recovery in the new homes market.
Non-residential building is expected to largely 'drift sideways' overall, though commercial and industrial markets are exceptions and may perform better than other non-residential sectors.
NSW is forecast to be the strongest with about 13% growth in 2013–14, followed by South Australia (around 8%) and Queensland (around 7%). Victoria is expected to be a minor drag with roughly a 2% decline, and Western Australia is forecast to fall by about 6% as the mining boom fades.
Dwelling starts are estimated to have risen about 8% in 2012–13 and are forecast to rise another 2% in 2013–14. NSW is expected to be a standout with dwelling starts up about 12% in 2013–14, while Victoria is forecast to see dwelling starts fall about 10%, partly offset by increased public construction.
According to BIS Shrapnel's Building Industry Prospectus, total building starts fell 11% in 2010–11, fell 1% in 2011–12, and were estimated to fall another 1% in 2012–13 before the projected 3% rise in 2013–14.
BIS Shrapnel and managing director Robert Mellor note there are big differences between sectors and between states, so outcomes depend heavily on where exposure lies — some regions and sectors may recover sooner while others remain weak.
The report highlights population growth creating supply pressures in NSW, Queensland and WA, which is supporting a residential upturn and higher dwelling starts in those states — a factor investors may watch when assessing exposures to residential construction or property-related assets.
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