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Construction contraction

UNCERTAINTY surrounding interest rates and an unstable stock market has had little effect on the level of construction work in WA, however the near future isn’t looking quite as rosy.

The Bentleys MRI Survey of Building Industry Conditions suggests the industry is facing a contraction phase despite the strong level of inquiry in the residential market.

Bentleys MRI director Graeme Sampson said expectations remained positive in the short term.

“There’s a positive outlook for the September quarter but we’re anticipating some decline after that,” he said.

“It’s because of the falling away in trading conditions as a result of the loss of the first homeowner’s scheme and interest rate increases.”

The expectation of a slowing in the construction industry is also based on analysis of the market on the other side of the country.

“There is a lag factor with the eastern States. WA is a bit behind,” Mr Sampson said.

“They [WA and the eastern States] run on slightly different cycles, but the macro economic impacts are the same.”

The strength of the WA economy is likely to support the industry, however industrial relations issues in WA are an important factor in this sector.

“In the short term we’ve still got evidence of good sales inquiries,” Mr Sampson said.

“In the housing sector the construction industry lags by about six to nine months from the sale.

“What the survey indicates is that sales inquiries are positive and if they are converted to sales then the December and March quarter will be positive.

“Past March, that’s a difficult call.”

An industry source said the downward shift in the construction industry was more of an adjustment than a contraction of the market.

“It’s just a correction after a government-assisted surge,” he said.

“You just can’t sustain those levels forever, especially given the interest rates environment.”

The Bentleys MRI survey sounds a clear warning about any further interest rate increases.

“Interest rate rises are poorly targeted if the intention of the Reserve Bank of Australia is to slow down the housing sector,” it says.

“Higher interest rates produce the sharpest initial impact on the first home market, which is already slowing due to the phase out of the First Home Owners grant.”

It also says there is a significant lag related to interest rates, which can stretch up to nine months.

Despite this the research suggests the commercial building sector will experience growth over the same period.

The statistics on the trading conditions in the commercial sector reveal almost half the industry participants inter-viewed believe conditions will be better in the September quarter.

In contrast, the margin expectations are not as rosy, with the scale tipped towards very little change.

Master Builders Association of Western Australia housing and economics director Gavan Forster said that, while there was a slowing in the first home market, the third homeowner’s market was “really moving.”

A number of second homeowners have sold their homes to the first homeowner’s market and are now building, Mr Forster said.

“There’s always a lag when the first home market is strong,” he said.

“The economy is pretty strong and interest rate rises don’t have much impact on that market [second and third home buyers].”

Despite this positive outlook Mr Forster said there often was a delay when the stock market softened, Mr Forster said.

“Maybe people are saying that property is a better bet, so you don’t get the decline you might expect,” he said.

“Eventually it will catch up, and eventually it will affect the construction industry.”

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