Victoria lags in building recovery
BIS Shrapnel's Building Industry Prospects report for March says confidence - until now the missing ingredient in the industry's recovery - was "at last showing signs of improvement".
"For more than a year, the fundamentals such as pent-up demand and lower interest rates have been in place, yet prospective players remained on the sidelines," the report said.
"In 2013, sentiment is turning," it said, but any upside would be hit by "a major correction downwards" in Victoria, South Australia and Tasmania, states that had over-built in the past few years.
The increase in confidence is being seen in loans to NSW investors, which accounted for three-quarters of January's national increase in the total value of lending finance.
NSW rose sharply in January, up by 32 per cent to $2.15 billion, according to Australian Bureau of Statistics lending finance figures. Similar loans in Victoria rose 16per cent, to $1.56billion.
Nine-tenths of demand for finance was from investors. Investor loans - including for refinancing - were up 19 per cent while owner-occupier loans rose by only 1 per cent.
Total building activity will record modest starts growth of about 1 per cent this financial year, while total building activity will gain about 3 per cent the following financial year (2013-14), BIS suggested.
The pace of growth in Australia's population was picking up after sharp falls following the global financial crisis. Net overseas migration reached 208,000 people last financial year and annual national growth was expected to rise to 1.76 per cent in two years.
"As net overseas migration and population growth have strengthened, underlying demand has already begun to recover from its 2010/11 low," the report says.
Residential building was expected to surge in under-supplied markets such as NSW, but would shrink in Victoria, BIS expects.
The forecast growth follows ambitious targets set by NSW Premier Barry O'Farrell's government for population growth in the state.
The NSW government recently unveiled a revised housing target for an extra 545,000 homes by 2031, an average of 27,250 a year.
NSW's draft Metropolitan Strategy is expected to explore ways to increase the supply of new homes by rezoning larger projects that have the support of both local government and the private sector.
Victoria's manufacturing sector was the hardest hit of all states.
The state's housing market has moved from under to over-supply and "significant volumes of dwelling completions are still set to enter the market", BIS said.
The state's total dwelling commencements are forecast to fall 5 per cent this financial year and drop sharply the following year.
Frequently Asked Questions about this Article…
The recovery is expected to be gradual and uneven. BIS Shrapnel's March Building Industry Prospects report says sentiment is improving in 2013, but any upside will be constrained in some states that over-built. Overall total building activity is forecast to post modest starts growth of about 1% this financial year and to gain about 3% in 2013–14.
NSW and Western Australia are forging ahead, with strong investor demand and policy support in NSW. Victoria is expected to languish — likely to experience a correction after earlier over-building — while South Australia and Tasmania are also at risk of downward corrections.
Investor lending has driven most of the activity: nine-tenths of recent finance demand came from investors. Investor loans, including refinancing, were up 19% while owner-occupier loans rose just 1%. In January, loans to NSW investors accounted for three-quarters of the national increase in the total value of lending finance.
According to ABS lending finance figures cited in the report, NSW lending rose sharply in January by 32% to $2.15 billion. Similar loans in Victoria rose 16% to $1.56 billion.
Population growth is picking up after falls following the global financial crisis. Net overseas migration reached 208,000 last financial year, and annual national growth is expected to rise to about 1.76% within two years. BIS Shrapnel says strengthened migration and population growth have already helped underlying demand begin to recover from the 2010–11 low.
BIS expects Victoria's housing market to shrink after moving from under-supply into over-supply. The state's manufacturing sector was hit hardest, significant volumes of dwelling completions are still due to enter the market, and total dwelling commencements are forecast to fall about 5% this financial year and then drop sharply the following year.
NSW is seen as under-supplied and benefiting from strengthened demand and investor lending. The state government has set ambitious housing targets (an extra 545,000 homes by 2031, averaging 27,250 a year) and its draft Metropolitan Strategy proposes rezoning larger projects to increase new-home supply with local government and private-sector support.
Key risks include uneven state-level markets (notably over-supply in Victoria, South Australia and Tasmania), the possibility of a major downward correction in those states, and the timing of when pent-up demand and lower interest rates translate into real development activity. Investors should monitor regional supply levels, lending trends (investor vs owner-occupier), and population/migration data cited in the BIS report.
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