Pete Wargent blogspot

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

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Wednesday, 2 November 2016

Value of building approvals explodes (non-resi comes to the party)

Part 1 - Approvals slide

A rapid-fire rattle through Building Approvals figures for September in the usual three parts. 

Total residential approvals fell for a second month by -8.7 per cent in the month to 18,945, to be -6.4 per cent lower than a year ago.

To be clear, though, nearly 19,000 approvals in a month is still a LOT!

In annual terms total approvals wormed back to below 238,000, fairly evenly split between houses and other dwellings. 

Part 2 - City by city (Sydney not full)

House approvals are now steadily trending lower, driven by ongoing falls in Perth as population growth in the WA capital has slowed.

Even the undisputed king of house-building Melbourne is looking peaky here. 

The monthly decline in approvals was largely driven by significant declines in unit and townhouse approvals in Sydney, and to a slightly lesser extent Melbourne. 

Despite this, after a couple of epic months Sydney still managed to notch a record high 41,650 approvals over the year to September. 

Median unit and apartment prices in Sydney hit a record high $705,000 last month according to Residex, so the demand has arguably been there, but there is clearly a sweeping supply response in the post. 

Elsewhere, it looks as though developers are gradually backing away from unit developments.

Part 3 - High rise dream!

Finally, the volatility in building approvals was all the way driven by the 'lumpy' high-rise sector, where approvals were 30 per cent lower than a month previously following a barnstorming run.

As you can see, approvals for other dwelling types are generally softening. 

Sydney continues its plans to build up, but elsewhere the market has become saturated, and must fall.

The wrap

Overall, this was a result that matched expectations for a change, and one which suggests that the residential construction boom will peak some time in 2017. 

One swallow doesn't make a summer, of course, but a broad-based and monster spike in non-residential approvals for office blocks, retail, and hotels implies that the next wave of construction may be in the commercial sector.

The value of total building approvals in September was therefore by a huge margin the greatest on record at $11.9 billion, which if sustained would be amazingly positive news.