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Weekend reads

The must read articles of the week - summarised for you here at Property Update!

Now manufacturing is booming

Fastest rate of expansion in 15 years, with a reading of 59.8...

Source: AIG

Rebalancing away from high-rise

Soft landing

There was another upbeat result for building approvals in the month of July 2017, with a shade under 18,300 dwellings approved in the private sector.

From a year ago private sector attached dwelling approvals are some 30 per cent lower, leading total approvals to be off by 14 per cent year-on-year.

Approvals are evidently well down from the peak, especially for high-rise apartments as we shall see. 

However, detached house approvals have been steadily trending higher over the past five months, and demand for new homes has picked up the pace too.

Although attached dwelling approvals remained at relatively strong levels in the most populous capital cities in July, the entrenched downtrend is abundantly clear. 

In Brisbane, annual approvals continue to drop precipitously as that market grapples with high-rise overbuilding, especially in the inner city.

Interestingly much of the recent strength in detached house approvals has been accounted for by the regional centres, as house price growth ripples outwards.

At the capital city level detached housing in Brisbane looks robust, but annual house approvals in fundamentally oversupplied Perth are down by 41 per cent from the cyclical peak of December 2014.

High-rise boom & bust

Looking at the composition of dwellings approved shows that in annualised terms high-rise apartments have dropped by a quarter since the heady peak of October 2015.

Indeed, the great bulk of the volatility through this cycle has been driven by the heady combination of low interest rates and a surge of Chinese investor demand for high-rise apartments (which has now gone into reverse gear with local financiers having pulled up stumps).

Lately there has been a shift back towards approvals for more boutique apartment blocks, and especially townhouses. 

The boom and subsequent bust in high-rise approvals has followed a markedly similar pattern across each of the three most populous states, thus underscoring the point, although demand in Sydney and Melbourne has held stronger for longer.

Non-residential steps up

While there have been fears of a disorderly slowdown in construction, the total value of building approvals surged in the month July and has been trending solidly higher for six months, helped along by strengthening performance in the non-residential sector.

In fact, the trend in non-residential approvals smoked a record high in July 2017 - in dollar value terms, if not as a share of GDP - driven by office and education buildings in New South Wales and Victoria.

With public works, infrastructure spend, and engineering construction rising, overall the sector remains in considerably better nick than seemed likely at the back end of last year. 

Emphatic rebound in engineering construction

Construction spikes

The ABS released its construction work done figures for the June quarter this week.

There was a moderate +1 per cent increase in building work done, driven by the non-residential sector, with residential building work done looking to be beyond the peak now.

And then there was a monster +22 per cent spike in engineering construction work done in the quarter to $24.7 billion.

After years of declines since 2012 this was a big result, driven overwhelmingly by a +$4 billion increase in Western Australia. 

There was some debate about whether this related to the import of a floating LNG platform, Prelude, and whether there would thus be no impact on GDP in the second quarter (i.e. the opposite entry might yet be recorded as an import in the balance of payments next week). 

I'm not sure what the consensus was, not that it necessarily matters all that much. 

If accruals accounting isn't going to be applied in full then you'd expect to get these quarterly anomalies from time to time (if the $4 billion does relate to the import of a floating platform then arguably the dollar amount should be amortised over the full construction period, but there were no explanatory footnotes to this effect in the release). 

The key point is that resources construction hasn't been in material decline for some time now outside Western Australia, and to some extent the Northern Territory.

And now construction activity isn't declining in WA either. 

Meanwhile, public sector building work done has also been expanding solidly, helping construction work done to rise by +9.3 per cent in Q2 2017.

With commodity prices having rebounded sharply, there is further compelling evidence here that Australia has successfully negotiated the resources construction cliff, in doing so chalking up another risk to the economy successfully averted. 

For the record, consensus market forecasts expect a solid result for GDP either way.

Land prices surge

Land prices hit record high

The Housing Industry Association (HIA) reported that land prices continued to rise sharply in early 2017. 

The median vacant lot price rose by +2.1 per cent in the first quarter of the calendar year to a fresh high of $253,525, according to HIA figures.

The price gains in capital cities have been stark through this cycle, rising by another +9.8 per cent over the year to March 2017 to above $290,000.

Capital city land is about 35 per cent more expensive than it was five years ago.

The bulk of the price gains since the financial crisis have been driven by the largest city, Sydney.

The median lot price in Sydney has increased from around $250,000 to about $450,000 since 2009.

Notably volumes have fallen sharply in recent years, suggesting that land release has been too slow to meet high levels of demand for greenfield sites.

Although price gains have once again been huge in Sydney over the 12 months to March at +11.1 per cent, the strongest increase in median prices was seen in Melbourne (+16.6 per cent).

There were also annual increases in Adelaide (+7.4 per cent), Brisbane (+3.6 per cent), and Perth (+2.7 per cent), with Hobart the only capital city to record a decline in its vacant lot prices. 

On a price per square metre basis, all of the mainland capital cities recorded a significant increase over the past decade. 

Barangaroo

Barangaroo update

A characteristically drab and chilly Sydney winter's day!

A quick look at what's happening down at the new Sydney suburb of Barangaroo.

Some new harbourside residential apartments, though not that many.

Much, much more A-grade commercial space!

The monumental international towers.

New ferry wharves...

The next commercial phase getting underway.

And a look back towards King's Street Wharf and Cockle Bay.

It's a huge project. 

At the other end of Darling Harbour, the gleaming new International Convention Centre and hotel have been constructed. 

Consumer confidence...bounces

Bounce...

Up to 113.5 this week - from a rather subdued 109.5 last week - according to ANZ-Roy Morgan.

At 113.5, consumer confidence sits just slightly above the long run monthly average since 1990 of 112.9.

Not likely to pick up much either until wages start growing faster, but since few people seem to be bothered by elevated unemployment it looks like things will just meander along.