New homes market tipped to lead rebound in building sector

Australia's construction industry can expect to see a modest recovery in the next financial year courtesy of a rebound in the residential 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.