Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

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Wednesday, 12 October 2016

Hello, completions!

Completions surge arrives

The hard thing about the Building Activity release is which figures to focus on.

There are so many moving parts.

Let's simplify this into three short parts, and five charts.

Part 1 - Commencements pass peak

Firstly, dwelling commencements have now passed their peak.

In particular, attached dwelling commencements fell by 24.4 per cent in the June quarter from about 32,000 (truly epic!) to roughly 24,000 (still quite high).

It appears reasonable to surmise that the commencements frenzy has now calmed down a tad.

As you can see this has been Australia's greatest ever construction boom, particularly for attached dwellings.

In original terms commencements fell by nearly 20 per cent in New South Wales in the June quarter, and in the chart below you can see why.

With fears of apartment oversupply, many approvals may never see the light of day.

In fact, there are an unprecedented 39,359 dwelling approvals that have not been commenced.

Commencements are also now well down from their peak in Western Australia.

However, the number of dwellings already constructed over the past year at around 32,000 - added to those still under construction - is clearly too high in the face of slowing population growth, thereby guaranteeing that the local property market downturn in Perth continues into 2017.

Part 2 - Completions surge (at last!)

The ABS confirmed some very useful-to-understand statistics on how long it takes new flats and apartments to be constructed (about 5 to 7 quarters on average) as compared to houses (about 2 to 2.5 quarters).

So it's been a long time coming, but at last the new apartments are coming online in droves.

In fact the period to June was the greatest ever quarter for attached dwelling completions at 25,311, while there was also a big lift in house completions to 31,324. Big bickies here!

As you can see below, Sydney, Melbourne, and Brisbane account for the bulk of the new apartments boom.

Part 3 - The pipeline

All that remains now is to sit back and watch how the remainder of the boom plays out as the 150,000 attached dwellings under construction eventually become completions. 

Remember: within the next 5 to 7 quarters from June 2016 all of these will be real dwellings (or at least, shoeboxes)!

Which means that by around the end of 2017, the market will be supplied to the max.

The big cities are just starting to work their way through the apartments pipeline.

We already know from the approvals figures that an unprecedented volume of this new stock will be high rise apartments.

Let's see how this baby plays out.