Around the non-mining economy I am finding commercial building struggling and a number of building contractors are going the wall. I was talking to a close associate of one medium sized but substantial building contractors yesterday, and found that the builder’s banker was playing hardball on bank guarantees – an essential part of winning the limited number of tenders available.
Banks deny that they are playing hardball with business but that’s not what my construction mates are experiencing.
Australia has two easy ways available to boost construction and encourage banks to lend to commercial builders (the third way, fixing industrial relations, is harder).
First we need to make property development much simpler. Every state has its own mess but there is no greater mess than in Sydney. Harry Triguboff’s Meriton Group is Sydney’s largest apartment developer and this morning he explains how in six steps you can reduce the cost of a $550,000 Sydney apartment to $490,000. Clearly Triguboff is biased but the steps he is suggesting are no-brainers for any government wanting to lift construction. (Six steps to apartment affordability, April 19).
Similar steps are available in other capital cities, although the cost reductions may not be as great. As it happens we may get a boost by doing nothing – in Sydney, Melbourne and Brisbane during the last three weeks Chinese have started buying our inner city apartments at an unprecedented rate (An iron hand under housing, April 16).
This new and sudden development caught out two of our commentators yesterday – Craig Peacock (China is no property saviour, April 17) and James Laurenceson (Waving the flag for Chinese investment, April 17). Peacock was right in saying that Chinese buying had been fickle so developers like Harry Triguboff faced a tough time. But Peacock had not caught up with the sudden rise in Chinese buying. Laurenceson was correct that Chinese investment outside the mining industry has been small.
Whether this sudden rise in Chinese buying of inner city apartments is a foretaste of a directional change remains to be seen. It is possible that the current momentum will fizzle out but we must recognise its potential importance because, as Laurenceson points out, China is the largest source of global capital and right now commercial building in non-mining Australia needs a boost.
We need this Chinese capital because the Australian banking system is being constrained as banks reduce their dependence on foreign funds and replace them with local deposits.