Construction activity tipped to stay flat for two years, auctions still down

Building activity will stay flat during the next two years due to a lack of Federal Government support and an underwhelming supply of projects from the private sector, a new BIS Shrapnel report reveals.

However, apartment construction will be an upside in an otherwise gloomy industry, especially in New South Wales where stamp duty relief will attract a number of construction providers and potential buyers, BIS economist Jason Anderson says.

“We’re reaching a point where the stimulus programs that have been put in place for buildings have been successful. But now we’re going through a period where these projects start to wind down, and we’re left with the question of what contributions will be coming from the private sector.”

While Anderson says the First Home Buyer scheme, social housing and the BER programs were all essential to the construction recovery, first home buyer numbers are down 50% during the first half of this year and non-residential building approvals are also down.

He says the residential sector hasn’t contributed to economic growth at all over the past couple of years, and uptake in non-residential construction is likely to be slow as private companies still struggle to recover from the financial crisis.

As a result, building commencement activity will likely remain flat during the next two years as the sector recovers.

However, apartment construction is set for some good activity. “We have an undersupply of housing, and we need a lot more apartments, and that’s the area where construction is going to see a lot of activity,” Anderson says.

“Apartment construction has the greatest upside, but if we look beyond apartments and into engineering and construction of other buildings, it’s going to be fairly soft over the next couple of years. That’s the environment we’re going to be working in as the private sector recovers.”

The report comes as auction results from the weekend show buyers are still backing away due to higher interest rates. Clearance rates were down across the country, indicating sellers are having a hard time attracting their preferred price.

The Real Estate Institute of Victoria found clearance rates for Melbourne came in at 67%, although chief executive Enzo Raimondo said the result was “consistent with the past few weeks, indicating that the market has settled at a new level this winter”.

“Buyers continue to have the upper hand; homes selling at auction are not exceeding vendors’ reserves in the same way that they were before Anzac Day.”

A total of 560 auctions were reported, with 375 selling. Total sales reached $263.26 million, with a median price of $716,000.

According to Australian Property Monitors, Sydney recorded a clearance rate of 71%, based on 142 sales out of 184 auctions, with a total sales price of $107 million.

In Brisbane, the city recorded a clearance rate of only 25%, based on three sales out of 10 on the market. Total sales reached $327,000. In Adelaide, the clearance rate rose to 68% based on 13 sales from 17 auctions, with a total sales result of $8.1 million.

Potential buyers are waiting for this Wednesday’s inflation data, which economists say will inform the board of the Reserve Bank as to whether another interest rate rise is warranted.