Australian Markets Weekly: 23 January 2017

Apartment construction which has risen strongly over the past few years was reported by the Statistician to have declined in the September quarter.

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Peak unit construction: are we there yet?

  • One of the key debates about the Australian GDP outlook at the present time concerns the shape/outlook for the residential construction cycle: (i) how long will activity hold up broadly at current levels; and (ii) how sharp will the ultimate downturn in construction be?
  • According to the Statistician, the peak of the apartment construction boom looks very near, with the ABS reporting that apartment construction declined in the September quarter and overall residential activity declined 1.4% q/q. In accompanying commentary, however, the ABS acknowledged that Australia’s 2nd wettest winter on record affected activity levels in Q3.
  • An alternative measure of activity, which should be less weather affected, is the RLB Crane Index, which reports on the number of cranes on residential building sites. This index showed a fall in crane numbers in the half year to September 2016 in Melbourne (-12%) and Brisbane (‑4%), following the completion of a number of residential towers. In contrast, crane numbers in Sydney increased (+8%), while nationwide, the number of cranes on residential projects across Australia rose from 528 to 539 between March and September last year. RLB also noted that crane numbers may bounce back in Melbourne next quarter.
  • That suggests that while crane numbers declined in some cities, the overall decline in dwelling construction reported by the ABS is unlikely to be unfolding quite yet, with Sydney in particular quite strong. The pipeline of work already underway should support activity levels in 2017, with the pipeline currently equivalent to 4.7 quarters of work. Nevertheless, with apartment approvals slowing, NAB expects construction activity to slow in 2018.

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