Home Building

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<p>The home builder AVJennings, spurred by the Homebuilder grant, has seen a 47 per cent year on year jump in house sales.</p>

<p>The details were revealed when AVJennings reported its results for the six months to December 31.</p>

<p>It has 12,700 lots in its portfolio.</p>

<p>2021 will see the commencement of three new projects, Prosper at Kogarah in Sydney; Rosella Rise at Warnervale on the NSW Central Coast; and Aspect at Mernda in Melbourne’s strong northern corridor.</p>

<p>All are due to commence on-site development. Last year saw its Bethania project in Queensland recommence with construction after a three year hold.</p>

<p><img alt="" height="816" src="https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/av_jennings_results.jpg" width="1200"></p>

<p>Its managing director Peter Summers forecast an even better second half for the company given new-home buyers remain active. It had 408 pre-sales carried over at 31 December 2020.</p>

<p>It has 331 contracts signed at 31 December 2020 with a pre-sale value of $121 million expected to settle before 30th June 2021. Around 118 additional contracts were signed in 2021 to 23 February 2021. It typically sells to owner occupiers, with some 46 percent being first home buyers during the first year of the financial year.</p>

<p>During the last financial year FHBs sat at 35 percent of their buyers. Over the period investors fell from 11 percent to 9 percent, while builder/developers fell away to constitute 14 percent of the market rather than its prior 21 percent take up.</p>

<p>HomeBuilder and other government support/stimulus had been "vital" in encouraging existing underlying demand to continue with their buying intentions, the report noted. It also noted the resumption and level of immigration into Australia, and New Zealand, will be important drivers of activity for the sector.</p>
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AVJennings is cautiously optimistic that the recovery will consolidate through 2021

jchancellor

Home builder AV Jennings sees big jump in house sales

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<p>GUEST OBSERVER</p>
<p>ABS figures for November 2016 demonstrate strength in lending for new housing.</p>
<p><span>Lending for new housing - to both owner occupiers and investors - turned in strong results in this latest ABS update.</span></p>
<p><span>The new home building </span><span>sector will continue to provide strong support to the broader Australian economy through the </span><span>first half of 2017.</span></p>
<p><span>The number of owner occupier loans for the construction or purchase of a new dwelling increased by 2.7 per cent in November 2016. Meanwhile the value of lending for construction investment reached a new record on a moving annual basis. </span></p>
<p><span>The new home lending cycle has peaked, but the November results confirm that the elevated volumes of lending we have seen over the last three and a half years remained in play as 2016 neared an end</span><span>. </span></p>
<p><span>T</span><span>hat’s a tick in the box for the Australian economy</span><span>.</span><span><br></span></p>
<p><span>As has been typical throughout this cycle, the profile for new home lending varies widely between states and territories</span><span>. </span></p>
<p><span>Looking beyond just today’s update, it </span><span>is not surprising that New South Wales and Victoria are faring the best overall.</span><span><br></span></p>
<p><span>Compared with 12 months ago, the number of loans for construction and purchase of new homes increased in five out of eight states and territories in November 2016. The fastest annual growth occurred in Tasmania (+28.4 percent), followed by Queensland (+20.0 percent), South Australia (+11.0 percent), New South Wales (+9.9 percent), and Victoria (+9.6 percent). The number of loans for new housing fell in November in the Northern Territory (- 57.9 percent), the Australian Capital Territory (-23.3 percent), and in Western Australia (-9.5 percent). </span></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/01/17/Screen%20Shot%202017-01-17%20at%202.12.29%20PM.png" target="_blank"><span>Click to enlarge</span></a></p>
<p><span><img src="https://www.urban.com.au/images/2017/01/17/Screen%20Shot%202017-01-17%20at%202.12.29%20PM.png" alt=""></span></p>
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<p><em>Harley Dale is chief economist at the Housing Industry Association and can be contacted <a href="https://hia.com.au" target="_blank">here</a>.</em></p>
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jchancellor-FAypfDUnLy

New house lending turns in strong result: HIA's Harley Dale

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<p><span>GUEST OBSERVER</span></p>
<p><span>Federal Opposition Leader Bill Shorten has announced plans to change negative gearing and the capital gains tax discount if Labor wins the next federal election.</span></p>
<p><span>Under costings released from the Parliamentary Budget Office, Labor’s proposed changes could save the budget $32.1 billion over 10 years once they come into force.</span></p>
<p><span><strong>Key measures include:</strong></span></p>
<ul>
<li><span>Negative gearing to be restricted to "newly constructed homes"</span></li>
<li><span>Capital gains tax discount reduced from 50% to 25%</span></li>
<li><span>Both measures would come into force from July 2017</span></li>
<li><span>All existing investments under the scheme would be fully "grandfathered" and protected against the changes</span></li>
</ul>
<p><span>With pressure on the current government to reduce the growing Budget deficit, and Treasurer Scott Morrison's refusal to rule out any changes in policy across the board, negative gearing would seem to be the one area squarely in the sights of both the government and the opposition, especially when you look at the statistics…</span></p>
<ul>
<li><span>There are currently 1.2 million people who have negatively geared property, and most of these people are middle class Australians.</span></li>
<li><span>Australian Tax Office statistics show negatively geared property investors claim over $13 billion in losses each year, and the average loss per negatively geared investor is over $11,000</span></li>
<li><span>The average loss per negatively geared property doubles for people earning more than $180,000, to over $24,000.</span></li>
</ul>
<p><span>Should our governments look beyond the numbers? Is it a false economy just to think that by tinkering with negative gearing it will solve the budgetary problem?</span></p>
<p><span><strong>5 Reasons Why the Government Shouldn't Change Negative Gearing</strong></span></p>
<p><span><strong>1. Growing Population</strong></span></p>
<p><span>With Australia's population set to grow significantly over the coming decades, our governments should be asking "How will we house these people?"</span></p>
<p><span>The government does not have the capacity, nor the finance, to provide public housing for the growing population so this is left to the private sector.</span></p>
<p><span>Negative gearing allows more Australians to invest in property, as the tax benefits assist with the cash flow to invest and hold onto that property. If negative gearing is changed and CGT concessions are reduced, it will mean less investors, less demand and less houses, and it will place further pressure on the government to fund and provide housing.</span></p>
<p><span><strong>2. Financial Pressures of the Ageing Population</strong></span></p>
<p><span>There are currently 1.2 million middle class Australians investing in property to generate a capital gain and increase their asset base for retirement, to subsequently ensure that they can maintain a standard of living in their retirement without having to solely rely on the aged pension.</span></p>
<p><span>If the government creates a blockage into entry for property investment by chipping away at the tax benefits or reduce capital gain concessions, property investment becomes less attractive. In the long term, this will see more Australians relying on government pensions, meaning less self-funded retirees and therefore further pressure will be placed on future budgets.</span></p>
<p><span>The government needs to take a long term view and look beyond today. A change to negative gearing and capital gain concessions will only make matters worse in the future.</span></p>
<p><span><strong>3. A Drop in Property Prices</strong></span></p>
<p><span>Will a change in negative gearing and capital gain concessions disincentivise investors and, if so, what impact will this have on property prices?</span></p>
<p><span>In the short term, we may see a dip in property prices due to lower demand and increased supply – which will impact on the economy across the board. State governments will miss out on a large chunk of revenue (via loss of stamp duties), which could mean less funding to spend on things such as education, hospitals and infrastructure at a state level. The federal government will then have to fork out more to state governments to compensate.</span></p>
<p><span><strong>4. Knock On Effect to the Economy</strong></span></p>
<p><span>Will the changes deter people from investing in property?</span></p>
<p><span>Due to the loss of the tax benefits, people will not be able to fund the cash flow of an investment property, meaning they simply won’t buy investment properties. This will cause a knock on effect similar to what we have seen in the mining industry after the boom.</span></p>
<p><span>It could also mean a rise in unemployment in the building sector and associated industries such as white goods, electrical and service related industries like real estate and everything that goes with it. As previously mentioned, state governments will be impacted with less revenue from stamp duties to spend on state infrastructures – which would also mean less jobs.</span></p>
<p><span><strong>5. Short Term Thinking</strong></span></p>
<p><span>For all of the reasons above, I can understand why the government might look at the numbers in front of them and think changing the rules around negative gearing and capital gain concessions is a win for budgetary reasons, but it is simply a case of short term thinking. The government really needs to take a deep breath, sit back and carefully consider what impact this will have on the economy long term.</span></p>
<p><span>Any changes made may increase revenue today, but they – or should I say we – could end up paying for this 10, 20 or 30 years down the track. To put it bluntly, a short term gain for long term pain is not good business.</span></p>
<p><span>With 1.2 million middle class Australian property investors impacted, changing the rules are negative gearing and capital gains concessions would be highly unpopular – and it could be a game changer for either political party.</span></p>
<p><em>David Naylor is co-founder &amp; non-executive director, Chan and Naylor National Accounting Group and can be contacted <a href="https://www.chan-naylor.com.au/" target="_blank">here</a>.</em></p>
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Property 101: Five reasons why the government shouldn't change negative gearing

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<p><img src="/images/2015/11/NEW_RAMS_LOGO.jpg" alt=""></p>
<p>You may decide that rather than buying an established property as your first home, it would suit you better to build. </p>
<p>Building allows you to customise your home from the outset, creating a property that perfectly suits your needs without having to renovate. </p>
<p>You’ll probably have lower maintenance costs on a newly built property than an older home and you may be able to incorporate energy and water efficient features that save on utility <span>bills. </span></p>
<p>In addition, government grants are more widely available on newly built properties. Check what’s available in your state or territory. </p>
<p>But there are some points to bear in mind if you’re planning to build: </p>
<ul>
<li>
<span>Building your own home may take longer than finding an existing property to buy. There </span><span>may be delays due to bad weather or council approvals taking longer than expected. </span>
</li>
<li><span>You may need to factor in the cost of paying rent while you’re building.</span></li>
<li>
<span>Standard building packages often include only basic fixtures and finishes. You may have to </span><span>pay more for higher quality options.</span>
</li>
<li>
<span>In some cases, particularly when you’re buying off-the-plan, there may be charges for </span><span>services such as site preparation, laying foundations, and connecting to water and </span><span>electricity mains. Make sure you’re aware of all the extra costs and have funds available to </span><span>pay. </span>
</li>
</ul>
<p>If you’re building, it might be worth considering a construction home loan rather than a standard mortgage. These loans allow you to draw funds progressively as needed up to an approved credit limit. Interest is charged only on the portion of the loan you’ve used. The lender may be able to make payments directly to the builder. </p>
<p>Quick tip: Confirm the builders and contractors you’re hiring are licensed and insured. Keep a close watch on construction to make sure they are delivering the high quality results you expect. </p>
<p> </p>
<p>TO FIND OUT HOW RAMS CAN HELP EASE YOU THROUGH THE PROCESS, GET IN TOUCH WITH YOUR LOCAL RAMS HOME LOAN EXPERT OR DROP IN FOR YOUR <a href="https://ad.doubleclick.net/ddm/clk/297185263;124283895;u" target="_blank">FREE FIRST HOME BUYERS’ GUIDE</a>.</p>
<p>For more great property advice and tips on buying your first home from RAMS subscribe to <a href="https://ad.doubleclick.net/ddm/clk/297186218;124283892;s" target="_blank">The Great Australian Dream property series</a>.</p>
<p><span><span>For your free </span><em>Property Observer</em><span> eBook from RAMS, <em>12 tips for first-time buyers</em>, </span><span>covering</span><span> </span><span>everything</span><span> you need to know when it comes to purchasing property, <a href="component/content/article?id=48727" target="_blank">click here</a>.</span></span></p>
<p><em>Disclaimer: Information in this material is general and does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. You should also obtain independent professional advice relevant to your financial circumstances.</em></p>
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Building your first home

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<p><span style="line-height: 1.3em;">Construction activity eases: Construction work done in the December quarter fell by 3.6 percent, driven </span><span style="line-height: 1.3em;">by a 9.5 percent slump in engineering work. Residential work lifted by 2.8 per cent to record highs while </span><span style="line-height: 1.3em;">commercial building rose 2.5 percent.</span></p>
<p>Building inflation: Building inflation rose by 1.1 per cent in the December quarter, the biggest quarterly <span style="line-height: 1.3em;">gain in seven years. The annual rate of construction inflation rose from 1 per cent to 1.9 percent – </span><span style="line-height: 1.3em;">matching the fastest annual growth rate in four years.</span></p>
<p>Slow wage growth: The wage price index rose by 0.5 percent in the December quarter after a 0.6 percent <span style="line-height: 1.3em;">rise in the September quarter. Annual wage growth eased from 2.3 percent to a record (18-year) low of 2.2 </span><span style="line-height: 1.3em;">percent.</span></p>
<p>Industry with fastest annual wage growth: Financial and insurance services (up 2.8 percent) followed by <span style="line-height: 1.3em;">education &amp; training (up 2.6 percent).</span></p>
<p>Industries with slowest annual wage growth: Administrative and support services (up 1.4 percent), <span style="line-height: 1.3em;">followed by Mining (up 1.5 percent).</span></p>
<p>The data on construction work is important for builders, building material companies and developers.</p>
<p>What does it all mean?</p>
<p>The ‘baton pass’ from engineering to residential building is clear for all to see. Engineering work continues to <span style="line-height: 1.3em;">recede while home building has hit new highs. Interestingly building (residential and commercial) has surpassed </span><span style="line-height: 1.3em;">engineering in terms of total work for the first time in five years. The results are even more staggering when you </span><span style="line-height: 1.3em;">consider that just two years ago engineering work surpassed total building by more than $11 billion. </span></p>
<p><span style="line-height: 1.3em;">The speed of </span><span style="line-height: 1.3em;">the turnaround has shown up in the patchiness across the national economy and in effect highlights the difficulties </span><span style="line-height: 1.3em;">faced by policymakers in trying to shore up growth.</span></p>
<p><a href="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.02.12%20AM.png" target="_blank"><span style="line-height: 1.3em;">Click to enlarge</span></a></p>
<p><span style="line-height: 1.3em;"><img src="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.02.12%20AM.png" alt=""></span></p>
<p>The wages data confirmed that inflation is well and truly in check. However an area to watch over the next couple <span style="line-height: 1.3em;">of quarters is inflationary pressures in the high-flying home </span><span style="line-height: 1.3em;">building sector. Inflation in the construction sector rose by the </span><span style="line-height: 1.3em;">1.1 percent in the December quarter – the fastest quarterly </span><span style="line-height: 1.3em;">growth rate in seven years. The lack of inflation in the rest of </span><span style="line-height: 1.3em;">the economy should ensure that for the moment the latest </span><span style="line-height: 1.3em;">result doesn’t trouble the Reserve Bank.</span></p>
<p><a href="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.05.59%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.05.59%20AM.png" alt=""></p>
<p>Clearly, the job market is improving because the cost of labour <span style="line-height: 1.3em;">has become more affordable for businesses. While low wage </span><span style="line-height: 1.3em;">growth is good for keeping costs down for businesses, modest </span><span style="line-height: 1.3em;">real wage growth (wages less prices) makes it more difficult for </span><span style="line-height: 1.3em;">consumer-focussed businesses.</span></p>
<p>Real wage growth remains positive – around 0.5 percentage <span style="line-height: 1.3em;">points if judged against “headline” inflation (15-year average </span><span style="line-height: 1.3em;">0.7 percentage points) and around 0.2 percentage points when </span><span style="line-height: 1.3em;">judged against “underlying” inflation.</span></p>
<p>Today’s data is unlikely to alter the Reserve Banks thinking when it comes to rates. While policymakers may <span style="line-height: 1.3em;">discuss the merits of another rate cut, they are unlikely to pull the trigger on domestic conditions. Rather a rate cut </span><span style="line-height: 1.3em;">would be driven by changes in the global environment.</span></p>
<p>What do the figures show?</p>
<p>Construction Work</p>
<p>Construction work done fell by 3.6 per cent in real (inflation-adjusted) terms in the December quarter after <span style="line-height: 1.3em;">sliding by 1.8 percent in the September quarter. Work done is down by 4.3 percent on a year ago. Public sector </span><span style="line-height: 1.3em;">construction work rose by 1.2 percent in the quarter while private sector activity fell by 4.6 percent.</span></p>
<p>Construction work fell in five of the states and territories in the December quarter. Leading the falls was <span style="line-height: 1.3em;">Northern Territory (down 17.7 percent), followed by Western Australia (down 9.5 percent), Tasmania (down 4.3 </span><span style="line-height: 1.3em;">percent), South Australia (down 3.1 percent), and Queensland (down 1.4 percent). Tasmania (down 1.8 per</span><span style="line-height: 1.3em;">cent) and ACT (down 0.6 percent). Construction rose in Victoria (up 1.1 percent), ACT (up 1 percent) and NSW </span><span style="line-height: 1.3em;">(up 0.2 percent).</span></p>
<p>Engineering work fell by 9.5 percent in the December quarter and has now fallen almost 25 percent in the past <span style="line-height: 1.3em;">three years. Engineering construction is down by 14.7 percent on a year ago.</span></p>
<p>Commercial (non-residential) building rose by 2.5 percent in the December quarter to be up 2.2 percent over <span style="line-height: 1.3em;">the year.</span></p>
<p>Residential building rose by 2.8 percent in the December quarter and was up by 11.5 percent over the year.</p>
<p>Alterations &amp; additions fell by 1.2 percent in the quarter while new residential work rose by 3.3 percent.</p>
<p>The measure of inflation in the construction sector (deflator) rose by 1.1 percent in the December quarter, <span style="line-height: 1.3em;">the biggest gain in 7 years. The annual rate of construction inflation rose from 1 percent to 1.9 percent – </span><span style="line-height: 1.3em;">matching the fastest annual growth rate in four years. Engineering prices rose by 1.5 per cent in the quarter (up </span><span style="line-height: 1.3em;">0.8 percent over the year) while building prices rose by 0.5 percent in the quarter (2.7 percent over the year).</span></p>
<p>Wage price index</p>
<p>The wage price index rose by 0.5 percent in the December quarter after a 0.6 percent rise in the September.</p>
<p>Annual wage growth eased from 2.3 percent to a record (18-year) low of 2.2 percent.</p>
<p>Private sector wages rose by 0.5 percent in the quarter while  public sector wages also rose by 0.5 percent.</p>
<p>Annual growth of private sector wages fell from 2.1 percent in the September quarter to a record low of 2.0 per<span style="line-height: 1.3em;">cent in the December quarter. Public sector wage growth fell from 2.8 percent to 2.6 percent in the December </span><span style="line-height: 1.3em;">quarter.</span></p>
<p><a href="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.13.15%20AM.png" target="_blank"><span style="line-height: 1.3em;">Click to enlarge</span></a></p>
<p><span style="line-height: 1.3em;"><img src="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.13.15%20AM.png" alt=""></span></p>
<p> </p>
<p>Including bonuses, wages rose by 0.5 percent in original terms in the December quarter to be up 2.2 percent <span style="line-height: 1.3em;">on a year ago – a record low. Private sector wages including bonuses rose by 0.5 percent in the quarter to be up </span><span style="line-height: 1.3em;">2.1 percent on a year ago (or up 2.2 per cent at a total hourly rate).</span></p>
<p>Industries with fastest annual wage growth: Financial and insurance services (up 2.8 percent), followed by <span style="line-height: 1.3em;">education &amp; training (up 2.6 percent) and Manufacturing and retail trade (both up 2.5 percent).</span></p>
<p>Industries with slowest annual wage growth: Administrative and support services (up 1.4 percent), followed <span style="line-height: 1.3em;">by Mining (up 1.5 percent), Professional, scientific and technical services and Construction (both up 1.6 per</span><span style="line-height: 1.3em;">cent).</span></p>
<p>Annual wage growth across States &amp; Territories: NSW, 2.1 percent; Victoria, 2.4 percent; Queensland, 1.9 <span style="line-height: 1.3em;">percent; South Australia, 2.3 percent; Western Australia, 1.8 percent; Tasmania, 2.2 percent; Northern </span><span style="line-height: 1.3em;">Territory, 2.4 percent; and ACT, 1.6 percent.</span></p>
<p>What is the importance of the economic data?</p>
<p>The Bureau of Statistics releases quarterly estimates of  Construction work done. The estimates are based on a <span style="line-height: 1.3em;">survey and cover around 85 percent of the construction work done in the period. Revised estimates will be </span><span style="line-height: 1.3em;">released in coming months. The data is useful largely for historical purposes but the work yet to be done </span><span style="line-height: 1.3em;">estimates provide an early warning signal of future activity. The residential work figures give a good early guide to </span><span style="line-height: 1.3em;">the strength of residential investment in the national accounts.</span></p>
<p><span style="line-height: 1.3em;">The Wage Price Index has been compiled since September quarter 1997 and measures quarterly changes in </span><span style="line-height: 1.3em;">wage and salary costs for employees. The index is based on a representative sample of employees, and includes </span><span style="line-height: 1.3em;">measures of non-wage costs including superannuation, payroll tax, public holiday and workers compensation.</span></p>
<p><span style="line-height: 1.3em;">The Wage Price Index is useful in measuring wage pressures in the economy. While strong growth in wages </span><span style="line-height: 1.3em;">would boost domestic spending, it could also serve to lift employer costs and prices and add to economy-wide </span><span style="line-height: 1.3em;">inflationary pressures. The wage price index is a measure of hourly pay rates (excluding bonuses).</span></p>
<p><span style="line-height: 1.3em;">What are the implications for interest rates and investors?</span></p>
<p><span style="line-height: 1.3em;">There is plenty of work in the construction sector. But there are winners and losers across states and industry </span><span style="line-height: 1.3em;">sectors. Construction activity in Queensland remains a concern. In the past two years, construction work has </span><span style="line-height: 1.3em;">slumped by 45 percent in Queensland – the most of any state or territory. The lack of construction work in </span><span style="line-height: 1.3em;">Queensland needs to be addressed by the State Government as it is robbing the economy of momentum.</span></p>
<p><span style="line-height: 1.3em;">In contrast to Queensland, construction activity in Victoria hit record highs in the December quarter. Builders, </span><span style="line-height: 1.3em;">tradespeople and construction firms need to be mobile in the current environment.</span></p>
<p><span style="line-height: 1.3em;">The Reserve Bank will be pleased about current trends in construction. Overall activity is correcting as expected </span><span style="line-height: 1.3em;">and adjusting to the new realities. And while inflation in the home building is higher than in the rest of construction </span><span style="line-height: 1.3em;">and higher than consumer prices, that is to be expected given soaring activity.</span></p>
<p><span style="line-height: 1.3em;">We expect the Reserve Bank to stay on the interest rate sidelines over coming months.</span></p>
<p><a href="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.21.01%20AM.png" target="_blank"><span style="line-height: 1.3em;">Click to enlarge</span></a></p>
<p><span style="line-height: 1.3em;"><img src="/images/2016/02/25/Screen%20Shot%202016-02-25%20at%209.21.01%20AM.png" alt=""></span></p>
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Tame wages and home building at record highs: Savanth Sebastian

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<div class="column">GUEST OBSERVER </div>
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<br>The ‘baton pass’ from engineering to residential building is clear for all to see.</div>
<div class="column"> </div>
<div class="column">Engineering work continues to recede while home building has hit new highs. Interestingly the gap between building (residential and commercial) and engineering in terms of total work is the largest in almost for six years. The results are even more staggering when you consider that just over two years ago engineering work surpassed total building by more than $11 billion. The speed of the turnaround has shown up in the patchiness across the national economy and in effect highlights the difficulties faced by policymakers in trying to shore up growth.</div>
<div class="column"> </div>
<div class="column">Interestingly inflation in the building sector seems to be more subdued than in the past year. Granted the annual rate of construction inflation is the fastest in almost five years. But it is largely due to a couple of outsized inflation in the September and December quarters last year. In fact the more sedate 0.5 per cent March quarter inflation reading resonates with the modest consolidation taking place in the housing sector and adds to the lack of inflation across the broader economy. The lack of inflation in the rest of the economy is likely to keep the Reserve Bank focussed on supporting price growth. </div>
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<p> </p>
<p>The data is unlikely to alter the Reserve Banks thinking when it comes to rates.</p>
<p>The focus now turns to the March quarter business investment data released tomorrow. And while the Reserve Bank will be particularly interested in estimates of completed non-mining investment, there will be a much greater focus on future spending plans. In the March quarter the first estimate of investment in 2016/17 was just $82.57 billion (weakest result since 2007/08), and 19.5 per cent lower than the first estimate for 2015/16 – marking the largest fall for a first estimate reading in records going back 25 years.</p>
<p>While policymakers will continue to discuss the merits of another rate cut, it really comes down to the inflation outlook. CommSec expects a low inflation result over the June quarter should result in the central bank cutting the cash rate in August.</p>
<p>What do the figures show?</p>
<p>Construction Work</p>
<p>Construction work done fell by 2.6 percent in real (inflation-adjusted) terms in the March quarter after sliding by 2.9 percent in the December quarter. </p>
<p>Work done is down by 6.7 percent on a year ago. Public sector construction work rose by 2.5 percent in the quarter while private sector activity fell by 3.7 percent. </p>
<p>Construction work fell in five of the states and territories in the March quarter. Leading the falls was Northern Territory (down 10.2 percent), followed by Western Australia (down 9.3 percent), South Australia (down 3.2 percent), Queensland (down 2.9 percent) and Victoria (down 1 percent). Construction rose in NSW (up 2.6 percent), the ACT (up 2.3 percent) and Tasmania (up 1.9 percent).</p>
<p>Engineering work fell by 4.2 percent in the March quarter. Engineering construction is down by 13.7 percent on a year ago.</p>
<p>Commercial (non-residential) building fell by 5.5 percent in the March quarter to be down 7.2 percent over the year. </p>
<p>Residential building rose by 1.5 percent in the March quarter and was up by 5.7 percent over the year. Alterations &amp; additions rose by 1.1 percent in the quarter while new residential work rose by 1.5 percent.</p>
<p>The measure of inflation in the construction sector (deflator) rose by 0.5 percent in the March quarter. The annual rate of construction inflation rose from 1.9 percent to 2.3 percent – matching the fastest annual growth rate in almost five years.</p>
<p>Engineering prices rose by 0.6 percent in the quarter (up 1.9 percent over the year) while building prices rose by 0.4 percent in the quarter (2.3 percent over the year).</p>
<p>What is the importance of the economic data?</p>
<p>The Bureau of Statistics releases quarterly estimates of Construction work done. The estimates are based on a survey and cover around 85 per cent of the construction work done in the period. Revised estimates will be released in coming months. The data is useful largely for historical purposes but the work yet to be done estimates provide an early warning signal of future activity. The residential work figures give a good early guide to the strength of residential investment in the national accounts. </p>
<p>What are the implications for interest rates and investors?</p>
<p>There is plenty of work in the construction sector. But there are winners and losers across states and industry sectors. The Reserve Bank will not be overly concerned with the current trends in construction. Overall activity is correcting as expected and adjusting to the new realities. We expect the Reserve Bank to cut rates once again in August.</p>
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<div class="column"><em>Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a></em></div>
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Construction eases, home building at record highs: CommSec's Savanth Sebastian

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<p>GUEST OBSERVER</p>
<p>Construction work done in the June quarter by 3.7 percent, to be down 10.6 per cent on a year ago.</p>
<p>Engineering work fell by 9 percent in the June quarter – biggest quarterly fall in 151⁄2 years. Engineering construction is down by 24.9 percent on a year ago – biggest annual fall on record. Residential work rose by 0.8 percent in the June quarter to record highs, while commercial building lifted by 2.1 percent.</p>
<p>Building inflation: Building inflation rose by 0.6 percent in the June quarter. The annual rate of construction inflation rose from 2.1 percent to 2.7 percent – marking the fastest annual growth rate in 71⁄2- years.</p>
<p><a href="/images/2016/08/24/Screen%20Shot%202016-08-24%20at%201.49.52%20PM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/08/24/Screen%20Shot%202016-08-24%20at%201.49.52%20PM.png" alt=""></p>
<p>Construction work fell in four of the states and territories in the June quarter. Leading the falls was Western Australia (down 19 percent), followed by Northern Territory (down 3.2 percent), NSW (down 1.3 percent) and Tasmania (down 0.4 percent). Construction rose in Victoria (up 5.2 percent), Queensland (up 2.7 percent), the ACT (up 0.5 percent) and South Australia (up 0.1 percent).  The data on construction work is important for builders, building material companies and developers.  </p>
<p>What does it all mean?</p>
<p>Inflation in the building sector is lifting. Not only is the annual rate of construction inflation the fastest in over seven years. But inflation in three out of the past four quarters is amongst the strongest results recorded in the past four years. In addition recent construction industry reports forecast a further rise in hourly rates over the medium term at unionised building sites due to new enterprise bargaining agreements and labour shortages. Overall the lift in inflation in the building sector would not concern the Reserve Bank at present given the lack of inflation across the rest of the economy.</p>
<p>The ‘baton pass’ from engineering to residential building is clear for all to see. Engineering work continues to recede while home building has hit new highs. In fact engineering work record the sharpest quarterly decline in almost 16 years. Interestingly the gap between building (residential and commercial) and engineering in terms of total work is the largest in almost 10 years. The results are even more staggering when you consider that just over two years ago engineering work surpassed total building by more than $8 billion. The speed of the turnaround has shown up in the patchiness across the national economy and in effect highlights the difficulties faced by policymakers in trying to shore up growth</p>
<p>Today’s data is unlikely to alter the Reserve Banks thinking when it comes to rates. Focus now turns to the June quarter business investment data released on September 1. And while the Reserve Bank will be particularly interested in estimates of completed non-mining investment, there will be a much greater focus on future spending plans - especially in light of the fact that private sector construction activity continues to disappoint. </p>
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<p>What do the figures show?</p>
<p>Construction Work</p>
<p>Construction work done fell by 3.7 per cent in real (inflation-adjusted) terms in the June quarter after sliding by 0.3 per cent in the March quarter. Work done is down by 10.6 per cent on a year ago. Public sector construction work rose by 5.3 per cent in the quarter while private sector activity fell by 5.7 per cent.</p>
<p>Construction work fell in four of the states and territories in the June quarter. Leading the falls was Western Australia (down 19 per cent), followed by Northern Territory (down 3.2 per cent), NSW (down 1.3 per cent) and Tasmania (down 0.4 per cent). Construction rose in Victoria (up 5.2 per cent), Queensland (up 2.7 per cent), the ACT (up 0.5 per cent) and South Australia (up 0.1 per cent).</p>
<p>Engineering work fell by 9 percent in the June quarter – biggest quarterly fall in 15 1⁄2 years. Engineering construction is down by 24.9 percent on a year ago – biggest annual fall on record.</p>
<p>Commercial (non-residential) building rose by 2.1 percent in the June quarter to be up 0.4 percent over the year.</p>
<p>Residential building rose by 0.8 percent in the June quarter and was up by 9.4 percent over the year. Alterations &amp; additions rose by 5.4 percent in the quarter while new residential work rose by 0.1 percent.</p>
<p>The measure of inflation in the construction sector (deflator) rose by 0.6 per cent in the June quarter. The annual rate of construction inflation rose from 2.1 per cent to 2.7 percent – matching the fastest annual growth rate in almost 71⁄2 years. Engineering prices rose by 0.6 percent in the quarter (up 2.6 percent over the year) while building prices rose by 0.4 percent in the quarter (2 per cent over the year).</p>
<p>What is the importance of the economic data?</p>
<p>The Bureau of Statistics releases quarterly estimates of Construction work done. The estimates are based on a survey and cover around 85 per cent of the construction work done in the period. Revised estimates will be released in coming months. The data is useful largely for historical purposes but the work yet to be done estimates provide an early warning signal of future activity. The residential work figures give a good early guide to the strength of residential investment in the national accounts.</p>
<p>What are the implications for interest rates and investors?</p>
<p>There is plenty of work in the construction sector. But there are winners and losers across states and industry sectors. The Reserve Bank will not be overly concerned with the current trends in construction. Overall activity is correcting as expected and adjusting to the new realities.</p>
<p>While policymakers will continue to discuss the merits of another rate cut, it really comes down to the inflation outlook. CommSec expects a low inflation result over the September quarter should result in the central bank cutting the cash rate once again in November. </p>
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<div class="column"><em>Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a></em></div>
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Building costs rise at the fastest pace in 7.5 years: CommSec's Savanth Sebastian

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<p><span>OK so the </span>ABS Building Activity<span> data series doesn't quite run back to 1788, but take a Captain Cook at this:</span></p>
<p><a href="/images/2015/10/19/BA3.jpg" target="_blank"><span>Click to enlarge</span></a></p>
<p><span><img src="/images/2015/10/19/BA3.jpg" alt=""></span></p>
<p> </p>
<div>Dwelling completions have surged to their highest ever level with more than 186,000 homes completed over the past year.<br><br>Furthermore there are presently some 184,000 dwellings under construction, which is the highest number in Australia's history.</div>
<div> </div>
<div>Many pundits scoffed at the Reserve Bank's plan to stimulate construction, but prices are rising and supply has responded with a vengeance, despite inflation in the cost of trades and materials. </div>
<div> </div>
<div>As the largest cities have become denser over time, this construction cycle has largely been a story of units, townhouses and apartments - the "attached dwellings" sector. </div>
<p><strong><span style="text-decoration: underline;"><br></span></strong><strong><span style="text-decoration: underline;">Building work done</span></strong><br><br></p>
<div>It should be acknowledged that in spite of all the numbers that are being thrown around in relation to record home starts, record completions and record dwellings under construction, the residential construction boom has likely now nudged against its peak. </div>
<div> </div>
<div>Despite being higher over the year the value of new residential building work done slipped -3.4 per cent lower in the June quarter to $12.8 billion, although the resi sector was held up to some extent by a long overdue +4.0 per cent surge in major renovations work. </div>
<div> </div>
<div>There has not been much to shout about from the non-residential sector since the financial crisis stimulus. </div>
<div> </div>
<div><a href="/images/2015/10/19/BA1.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/10/19/BA1.jpg" alt=""></div>
<div> </div>
<div><span>At the state level the economies of the most populous states have benefited from a building boom, but the value of building work done appears to have peaked, albeit remaining at a historically high level. </span></div>
<div><span> </span></div>
<div><a href="/images/2015/10/19/BA2.jpg" target="_blank"><span>Click to enlarge</span></a></div>
<div><span> </span></div>
<div><span><img src="/images/2015/10/19/BA2.jpg" alt=""></span></div>
<div> </div>
<div> </div>
<div>
<strong><span style="text-decoration: underline;">Dwelling completions by state</span></strong><br><br><div>Where are new houses coming online? Mainly in Victoria with more than 31,000 houses completed over the past year.</div>
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<div><a href="/images/2015/10/19/BA4.jpg" target="_blank">Click to enlarge</a></div>
<div> </div>
<div><img src="/images/2015/10/19/BA4.jpg" alt=""></div>
<div> </div>
<div><span>As for units and apartments there has been a strong completion rate across most of the larger states, with Victoria again leading the way in completing nearly 25,000 units over the past year. </span></div>
<div><span> </span></div>
<div><a href="/images/2015/10/19/BA5.jpg" target="_blank"><span>Click to enlarge</span></a></div>
<div><span> </span></div>
<div><span><img src="/images/2015/10/19/BA5.jpg" alt=""></span></div>
<div> </div>
<div> </div>
<div>
<div>Although it will be the topic of a separate blog post, these figures show why the "Sydney oversupply" meme has been wide of the mark. </div>
<div> </div>
<div>The above charts represent state level figures, and it is clear that the supply of new units and apartments has ramped up impressively over the past four years.<br><br>But despite the improvement, total dwelling completions in New South Wales of 144,000 dwellings is barely keeping pace with a population which has surged by close to 400,000 over that time, while this follows on from a weak half decade of completions in the harbour city which ran from 2005.</div>
<div> </div>
<div>After accounting for stock obsolescence and demolitions, the thousands of apartments which are left vacant, and the fact that close to half of new dwellings in NSW over that time have been units (which typically house only provide accommodation for a couple)...well, there's not much overbuilding in aggregate to be found in those numbers, even if the rentals market is now fully supplied.<br><br>It is much more difficult for a growing city with a population the size of Greater Sydney (approaching 5 million) to overbuild housing than it is for a city the size of, say, Belfast, although Melbourne is certainly giving its best shot.<br><br>For all that, there are of course plenty of sub-regions around Australia with localised oversupply, and particularly so the case of higher-density dwellings. </div>
<br><strong><span style="text-decoration: underline;">Commencements peak at record high</span></strong><br><strong><span style="text-decoration: underline;"><br></span></strong>
<div>Total commencements have increased by +14 per cent over the past year to a new high of nearly 210,000.</div>
<div> </div>
<div>It was another strong quarter in June, but the 53,314 commencements result was below that of two of the preceding three quarters, and it is forecast that commencements will now decline through 2015/16.</div>
<p><a href="/images/2015/10/19/BA6.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2015/10/19/BA6.jpg" alt=""></p>
<p> </p>
<p><span>Finally, there are 184,000 dwellings under construction at the present time, which is the highest figure in Australia's history. </span></p>
<p><span>Click to enlarge</span></p>
<p><span><img src="/images/2015/10/19/BA7.jpg" alt=""></span></p>
<p> </p>
<p><span>This should keep the residential construction sector operating at or close to its full capacity for some time to come.</span></p>
<p><span> </span></p>
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
<p><span> </span></p>
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pwargent-M4siyDbqQY

Strongest homebuilding since 1788: Pete Wargent

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<p>The ABS reported that Building Approvals remained resolutely strong in August 2016, with some 20,788 private sector dwellings approved, driven yet by another rebound in attached dwellings.</p>
<p>The trend in detached house approvals has declined by about 5 percent since peaking in April 2015, while attached dwellings have just kept on trucking. </p>
<div id="post-body-9064765407508357015" class="post-body entry-content"><a href="/images/2016/10/07/A1.jpg" target="_blank">Click to enlarge</a></div>
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<div> </div>
<div>Over the year to August some 238,204 dwellings were approved, with the annual total levitating above 200,000 for 23 months on the bounce since October 2014. </div>
<div> </div>
<div>Commentators have been calling for an end to the boom for, well, basically all of that time, but those pesky numbers just won't sit down. </div>
<div> </div>
<div><a href="/images/2016/10/07/A4.jpg" target="_blank">Click to enlarge</a></div>
<br><img src="/images/2016/10/07/A4.jpg" alt=""><br><br><div><strong><span style="text-decoration: underline;">City by city (moar apartments!)</span></strong></div>
<div> </div>
<div>Perth and Darwin continue to adjust to their respectively slowing markets, with house approvals accordingly in a steep decline. </div>
<div> </div>
<div>Melbourne remains the city with the strongest trend in house approvals, which may be just as well given the awesomely strong population growth in that city.</div>
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<a href="/images/2016/10/07/A3.jpg" target="_blank">Click to enlarge</a><br><div class="separator"><img src="/images/2016/10/07/A3.jpg" alt=""></div>
<br><div class="separator">Sydney has seen a number of monumental projects put forward for consideration over the past year, including a 10-tower monster being proposed for the site of the present Fish Markets, opposite the old Wentworth Park Dogs.</div>
<div class="separator"> </div>
<div class="separator">It's never entirely clear specifically which projects the ABS approvals figures relate to, but Sydney has approved an all-comers record 11,838 attached dwellings in only three months (wow-wee!). </div>
<div class="separator"> </div>
<div class="separator">Records are being zinged all over the shop here.</div>
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<div class="separator"><strong><span style="text-decoration: underline;">High rise kaboom</span></strong></div>
<div class="separator"> </div>
<div class="separator">It's no particular surprise to note that the rebound has been driven by high-density apartment projects of four or more storeys - a high proportion of these will be sold to mainland Chinese - with approvals for most other dwelling types in a steady decline.</div>
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<div class="separator"><img src="/images/2016/10/07/A5.jpg" alt=""></div>
<br><div>While Victoria may have seen a number of high-rise projects pulled forward into FY2015/16 due to planning changes, New South Wales is rubber-stamping projects for fun right now (although whether all of these approvals come to fruition is another thing).</div>
<div> </div>
<div><a href="/images/2016/10/07/a6.jpg" target="_blank">Click to enlarge</a></div>
<br><div class="separator"><img src="/images/2016/10/07/a6.jpg" alt=""></div>
<br><div><strong><span style="text-decoration: underline;">The wrap</span></strong></div>
<div> </div>
<div>The approvals figures have elicited quite a lot of excitement, although the completions delivered to date have been far less arousing.</div>
<div> </div>
<div>The Housing Monitor reported that Sydney saw a total of 30,191 houses and apartments completed during 2015/16, which was the strongest result since 1999/2000 (which if anything just underscores how long it has been since Sydney constructed a decent number of dwellings). </div>
<div> </div>
<div>This sounds quite impressive until you compare it to the hugely strong population growth of the Greater Sydney region over the same time period. </div>
<div> </div>
<div>Unsurprisingly, the impact on price growth was precisely zip, with dwelling prices rising by about 10 per cent. </div>
<div> </div>
<div>However, the key characteristic of this construction cycle is the lag - and apartment completions will increase further in 2016/17. In fact, a lot further. </div>
<div> </div>
<div>The figures clearly continue to show that the delivery of this glut of high-rise projects is the most at-risk sector of the market.</div>
<div> </div>
<div>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
</div>
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</div>
<div> </div>
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