Building approvals to soar in 2011-12, BIS Shrapnel forecasts

Housing approvals and construction will begin to increase during the middle of the year as the weakness in the first-home buyer market drops out and upgraders start searching again, but the renewed confidence will keep a lid on prices, BIS Shrapnel has warned.

The forecaster’s new Building Industry Prospects report comes as auction results from the weekend show the property market is back in full swing this year – but clearance rates are still at 2010 levels indicating demand for new properties remains low.

BIS senior manager of building and construction Angie Zigomanis says the increase in first-home demand due to the Government’s stimulus brought forward a lot of purchases, prompting a decline in interest during 2010.

But now he says that demand is beginning to bottom out and more building and construction activity can be expected from the middle of the year – the total number of new dwelling approvals is expected to rise 8% to 177,000 in 2011-12, which will be the highest rate since 2003-04.

During the same period housing approvals will rise by 10%, BIS says.

“Australia had markets that were hit by the financial crisis, particularly slowdowns in some economies such as Queensland and Perth more recently. Tourism has impacted northern markets in a substantial way.”

“All of these weak markets had weak construction levels. But any deficiencies those markets have experienced is now becoming less of a problem. Construction will pick up from low bases in those areas.”

However, the approvals will change from market to market, Zigomanis says.

In New South Wales, dwelling approvals grew by 39% in 2009-10 from a low base. Zigomanis says “solid growth” in private sector dwelling approvals has taken over from Government stimulus, and approvals will grow by 3% in 2010-11.

Next year, total dwelling approvals will grow by 21%. Zigomanis says while there have been Government restrictions keeping prices higher, “substantial rezoning and lots of sub divisions have been prompting more activity”.

The Queensland market, severely crippled by the financial crisis and the most recent natural disasters, is working from a very low base, Zigomanis says.

“Brisbane is being affected by weak economic conditions, and places like the Gold Coast are seeing a lack of finance there. The area is under financial stress.”

While more immediate approvals will be hit by the floods, approvals will grow by 30% in 2011-12 “as the next round of resource investment ramps up and creates employment opportunities”.

Resources expansion will help approvals in Western Australia, Zigomanis says, with migration fuelling demand for housing. Approvals will grow by 15% – the highest level since 2005-06.

“There are very little governmental problems in Perth,” he says. “When the Perth market boomed it wasn’t about getting through red tape, it was more about meeting demand and getting that supply online quickly.”

Victoria, which has been one of the hottest property markets over the past two years, will slow down. The deficiency of dwellings in Melbourne will keep approval growth at just 6% in 2011-12.

Approvals will also grow by 8% in South Australia, by 1% in the Northern Territory (where constrained finances are hurting developers) and approvals will fall by 32% in the ACT, where “dwelling construction is now exceeding underlying demand”.

Zigomanis says this increased approval activity will do its share in keeping prices down during 2011-12.

“There are a number of issues at play here. Construction will pick up so that will alleviate some supply pressures. But the other side is also that economic growth will pick up, the screws will be tightened on interest rates and that will maintain a lid on prices.”

Meanwhile, auctions results show that while the property market is back in full swing, buyers remain cautious.

According to Australian Property Monitors, Sydney recorded a 63.3% clearance rate with sales worth $159.8 million from 193 sales. Adelaide recorded a 59.4% rate with only 19 properties sold and a total value of $7.5 million, while Brisbane had just one sale at $700,000.

According to the Real Estate Institute of Victoria, Melbourne recorded 441 sales out or 673 auctions, representing a clearance rate of 66%.

“This is a healthy result which indicates demand is consistent with results achieved in the last quarter of 2010,” chief executive Enzo Raimondo said in a statement.