Pete Wargent blogspot

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

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Thursday, 3 November 2016

Crowning glory?

Infrastructure to boom?

The residential construction boom will probably peak in 2017.

With tens of thousands of construction jobs on the line, something or other needs to step up to the plate and plug that gap. 

As I looked at here previously, the obvious answer for cities such as Sydney which has benefited from an unprecedented stamp duty windfall, is infrastructure projects

Some positive news was that the ABS Building Approvals figures for September recorded by far the greatest ever month for the value of building jobs approved at $11.9 billion. 

As you can see in the chart below, the driver of the record result was not residential approvals, although these are still tracking at historically high levels.

Instead, there was a gigantic +119 per cent spike in non-residential approvals to $5.5 billion, mainly commercial building jobs.

As is seemingly the case with most things these days, the massive monthly surge was driven by New South Wales (+$1.8 billion), and to a much lesser extent Victoria (+$0.5 billion). 

If sustained, this could be an amazing fillip for the economy.

But given that this was overwhelmingly a New South Wales spike, the prime candidate would have to be James Packer's casino and hotel development down at Barangaroo (which recently received a green tick, but isn't scheduled to be opened until 2021). 

Chill pill

Before everyone starts breathing too heavily, therefore, we should note that building approvals figures are always lumpy and volatile due to such large projects being approved in individual months, and we could quite easily see non-residential approvals snap back in October. 

A better indication of how the sector is shaping up can be simply to plot the figures for the five most populous states on a rolling annual basis.

Here, we can see that the September result may have helped to kick New South Wales and Victoria into gear, but the annual value of approvals has really only just begun to show real signs of life. 

So, this is definitely one to watch for the bulls, but the construction sector champagne should be left chilling on ice for now.