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Tuesday, 31 July 2018

Building approvals rose in FY2018

Building approvals bounce again

Total building approvals very solid once again in June 2018, up 6.4 per cent on the month to a seasonally adjusted total of 19,133. 

Over FY2018 there were some 230,721 building approvals, a solid 4 per cent increase in FY2017 defying far gloomier expectations. 

There's also been a phenomenal ramp-up in non-residential building work approved, mainly in Sydney and Melbourne, although in both cases the peak now appears to have passed. 

Overall the construction pipeline remains very large provided developers and buyers can access financing arrangements, which is questionable. 

Around the traps

Home approvals have generally followed migration flows, with Greater Brisbane now at the strongest level on record, and Perth at the weakest. 

House approvals in Melbourne also remain close to record highs. 

Forecasters had predicted three years ago that Melbourne would see attached dwelling approvals would collapse in half. 

It's hard to imagine a forecast turning out more wrong than that, with attached dwellings rising and rising and rising, up to 34,498 in FY2018 as the Melbourne economy and population booms. 

In total nearly 63,000 dwellings were approved in Melbourne in FY2018, although population growth has been remarkably strong too. 

CoreLogic's monthly dwelling values report showed the median price for Brisbane units rising 1.7 per cent over the second quarter of the year.

And this rebalancing is to some extent reflected in a steadying of approvals following a long downturn, although the composition has shifted towards townhouses and away from tower blocks.

Finally, a cautionary note for prospective investors in Hobart housing as annual approvals continue to rise to a 95-month high. 

Hobart is a small city and mainland developers are understandably reluctant to venture south across the Bass Strait due to the inherent logistical challenges, but with supply tight and prices flying a supply response is now taking shape. 

Real estate is usually best approached as a medium-to-long-term investment, and small cities are more prone to seeing a greater percentage uplift in the dwelling stock during a boom, so summarily new investors should be careful not to be caught with their pants down.

Yeah, I know, improving economy and all that...just sayin'!

On the plus side most of what gets built in Hobart is detached housing which is built in a few months.

This stands in stark contrast to the big capital cities where huge apartment towers can take 2-3 years from approval to completion, risking a stock overhang at the peak of the cycle.