Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's agents, 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.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Wednesday, 23 November 2016

Transition of WA mega-projects punches a gaping hole

Construction work flops in Q3

It was great to read the RBA speech this week which took a look around the traps at what is happening in each state, with so many familiar themes.

Today's Construction Work Done figures for the September quarter from the ABS added some further texture.

Construction work done fell sharply in the third quarter to the extent that up to a thumping 0.7ppts could be swiped from GDP in Q3. Owch! 

Engineering construction fell for a 12th consecutive quarter, down by -3.8 per cent, almost entirely driven by Western Australia, to be down by -23.2 per cent from a year ago. 



Perhaps rather more surprisingly both residential (-3.1 per cent) and non-residential building work (-10.9 per cent) fell in the quarter too. 

Overall, total construction work done declined by -4.9 per cent to $46.2 billion to be -11.1 per cent below a year ago. A weak result any way you look at it!

Engineering bottoms out (except WA & NT)

Contrary to the popular narrative engineering construction work is now actually rising again in New South Wales, Victoria, Tasmania, the ACT, and even in Queensland, where engineering construction essentially finished its correction all the way back in December 2015.

A key point highlighted both here and by the Reserve Bank is that Queensland is far ahead of Western Australia in terms of its economic transition, with the big declines happening between 2013 and 2015, while booming tourism and education arrivals will assist the Sunshine State's rebalancing greatly.

The reason for the national decline was all about Western Australia, where quarterly engineering work done has crashed from $12.4 billion in Q2 2015 to just $5.4 billion in Q3 2016 as mega-projects such as Gorgon and Roy Hill have transitioned towards the production phase.


The good news is that this means that the capex cliff has all but run its course, except in WA where activity has some way further to fall, and to some extent in the Northern Territory which still has one major gas project due for completion. 

Building boom

Sydney, Melbourne and Brisbane continue to enjoy the fruits of the building boom, although building work done declined somewhat in every sector in Q3 2016.

It's important to note that although all sectors saw a decline, this was from a very high base, and in annual terms building work done remains very high. 


State versus state

New house building work followed recent trends in approvals to inch higher in New South Wales and Victoria, but was a bit weaker across a number of states, while house building is rather belatedly declining fast in Western Australia.  


Building work done in respect of units and apartments declined everywhere except Queensland, though again it's important to note that the declines were modest and from record highs in the June quarter. 

Looking at the chart in rolling annual terms puts s slightly different perspective on the widely reported 'decline'.


The wrap

Outside WA, engineering construction is no longer in decline, although Ichthys LNG could slice another billion or so per quarter from construction work done in the Northern Territory upon its completion. 

A point I have been highlighting for a long time now is that in Queensland engineering construction took most of its medicine some years ago now, and actually stopped declining in any meaningful way nearly a year ago now back in December 2015.

With the weakness in non-residential construction this quarter, nationally Q3 GDP could be an absolute stinker, with construction chiselling a big hole out of the quarterly result (although non-residential construction should follow approvals higher again in due course, especially in New South Wales once J. Packer gets cracking on his latest venture).  

The residential building boom is operating at full capacity, and as such in aggregate has probably moved beyond its peak.

The Housing Industry Association (HIA) estimated that units and apartments construction will fall by 40 per cent from a record peak of 117,000 over the next three years, with housing starts having peaked this year at just under 230,000.

As ever, the HIA sees housing starts declining to just 172,200 by 2018/19.