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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 30 November 2016

From nosebleed to nosedive

Drop-off

Well, that was fairly conclusive!

Actual total Building Approvals dropped to 16,538 in October in original terms, well below the monthly peak of 22,969 seen last year, and down -23 per cent from the prior year comparative figure. 

This was the fifth monthly fall in the last six months in seasonally adjusted terms, and the trend result has now declined for 5 consecutive months.  

House approvals have held up relatively well, but a massive ongoing plunge in Perth has pulled down the national result. 


Unit approvals experienced a very significant decline almost everywhere except Canberra, with huge year-on-year drops in Sydney, Melbourne, Brisbane, Adelaide, and Perth in October. 

After several false starts, the decline in annual unit and apartment approvals is now certainly underway. 

Urbis had already reported this week that hundreds of apartment approvals in Brisbane will be shelved until the next cycle or canned completely, and this decline in approvals mirrors the inevitable forthcoming fall in apartment construction. 


Downdraft

Totting it all up, the thin green line shows the size of the drop in unit and apartment approvals, which came in at a walloping seasonally adjusted -42.6 per cent lower than a year ago for the month of October. 

In October itself there was a -24.8 per cent seasonally adjusted decline in unit approvals, following on from a similarly large -18.1 per cent decline in September. 


In annual terms attached dwelling approvals have declined from a record high peak of 122,100 to 115,300, with plenty more to come here. 


High rise giveth...& taketh away

The number of flats of four or more storeys approved has now declined by 10 per cent from the peak.


In fact, this sector alone has almost entirely accounted for the boom in dwelling approvals, and now, correspondingly, the numbers are set to go into freefall. 


The wrap

Although there is still a high volume of work in the pipeline, it's clear to see that apartment construction will need to fall, and fairly soon. 

Unfortunately last month's record spike in non-residential approvals - presumably driven by Packer's latest Barangaroo adventures - was not replicated this month, with the value of non-residential approvals all but halving month-on-month, from $5.4 billion to $2.8 billion.

In rolling quarterly terms, last month's epic Packer-inspired spike means that the total value of approvals over the last quarter is at a record high. 

Already, however, there are reports of apartment projects being delayed, so it seems unlikely that the residential sector can contribute much more to growth in the economy. 

Overall, although it could take a little while, it seems that it won't be too long before residential construction will switch from being a driving force for the economy to becoming a headwind.