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Lull or death throes, boom set to slow

A RECENT report by BIS Shrapnel has cast doubt on the projections of many property market commentators regarding the national residential construction boom.

In sharp contrast to those who expect the boom to run out of puff soon, the report has forecast only a temporary lull, with the property boom continuing until 2006.

The study, Building in Australia 2003 to 2018, outlines that total building commencements will suffer a 6 per cent decline in 2003-04, due largely to an 11 per cent decline in new dwelling activity.

However, BIS Shrapnel director Robert Mellor said this would be a mild correction and not a fundamental cyclical downturn.

He said both residential and non-residential building commencements would move into a fully-fledged boom over the two years to 2005-06, driven by rising underlying demand in both sectors, as well as strong economic growth.

However, following a peak in activity by mid-2006, total building commencements are forecast to drop by 28 per cent over the two years to 2007-08 as housing interest rates of 10 per cent drive residential construction into a major downturn.

Mr Mellor said the likelihood of overbuilding in the non-residential building sector and the impact of an economic downturn would send non-residential building commencements into a cyclical downturn from 2007 until the end of the decade.

“Waning investor demand is expected to become apparent in 2003-04, with high vacancy rates impacting on demand for investment properties,” he said.

“First home buyer demand will remain weak, which will add to the modest decline of 11 per cent in the value of dwelling commencements in 2003-04.”

Despite this, BIS Shrapnel believes that strong underlying demand from net overseas migration will support the resumption of the residential construction boom during the 2004-05 and 2005-06 periods.  The highest growth is expected to be in Queensland, however relative to current activity, Western Australia and New South Wales are expected to perform quite strongly.

BIS Shrapnel has forecast variable housing interest rates to rise to 10 per cent in 2005-06 as high wages growth and resulting inflationary pressures lead the Reserve Bank to tighten monetary policy.

Office developments are estimated to have increased by 3 per cent in 2002-03, following a massive 58 per cent surge over the two years to 2001-02.

The upturn is expected to continue in 2003-04 as business confidence recovers, leading to another surge in the three years 2005-06 as office space tightens, rentals rise and the booming economy drives job creation, the report says.

The boom will occur across all the major cities, peaking around 2006 at almost double the current level of developments.

 

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