Pete Wargent blogspot


'Must-read, must-follow, one of the best analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Markets & Economics Editor, Sydney Morning Herald.

'I've been investing 40 years & still learn new concepts from Pete; one of the best commentators...and not just a theorist!' - Michael Yardney, Amazon #1 bestseller.

Tuesday, 3 July 2018

Approvals pointing to construction downturn

Approvals suggest weakening

Let's cut through the bear porn to unpick the May 2018 building approvals figures.

Unit approvals held up surprisingly well in the month, mainly supported by Melbourne.

House approvals were down by 8.6 per cent in seasonally adjusted approvals in the month. 

At the capital city level, not much was different from a year earlier, save for a slight decline in Perth and Brisbane. 

Interestingly the ABS found a few bonus approvals from preceding months in Hobart, which to the casual observer (i.e. me) seems more reflective of what's popping up on online listings. 

May was the second highest ever individual month for detached house approvals in Hobart, with the total annual approvals figure rising to a fresh-83 month high at close to 1,400.

Hobart is a small city of about 220,000 or so, and therefore a comparatively small upswing in construction can change the supply-demand dynamic, but with the statewide population growing at abut 5,000 per annum that outcome appears to be quite some way off that yet.

The wrap

A bit of a dichotomy here, with revisions to previously reported numbers taking the annual number of approvals higher, up to a very strong 229,433. 

Note in particular the spike in November, now revised up to 22,185, about 1,000 higher than initially reported.

That said, the trend across recent months is quite clearly down, with attached dwelling approvals shaping down towards 4-year lows in the face of macroprudential tightening and weaker capital city dwelling prices. 

The other question mark is whether approvals translate into actual commencements, with the total number of dwellings approved but not yet commenced hitting a fresh high at the end of 2017, driven by Sydney apartment projects. 

The total value of resi building approved over the year to May remains high, financiers permitting, while non-residential approvals are now paring back in New South Wales. 

The non-residential pipeline is solid, with Queen's Wharf in Brisbane and a raft of infrastructure projects in Melbourne the key drivers here. 

Overall, building approvals appear to remain solid enough, but it's increasingly difficult to see new apartment projects achieving enough pre-sales in the tighter financing environment.

Non-residential buyers have backed off in the face of stamp duty surcharges, and prospective resident off-the-plan buyers fear falling prices leading into settlement.

Therefore the downturn in apartment approvals likely does indeed presage a construction downturn.