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Positive outlook for Australia’s construction sector

Published by , Editor - Hydrocarbon Engineering
World Cement,

According to a new report, ‘Construction in Australia – Key Trends and Opportunities to 2018’, by Timetric, a leading business information service providing financial and economic research services based on proprietary data and analysis, the outlook for the Australian construction industry is positive.

Residential housing as a potential growth market

According to the report, construction activity in Australia has been fairly weak since late 2012 – the industry posted a contraction of 0.2% in real value-added terms in 2013. This followed an annual average growth of 6.8% in real terms in 2011/2012. However, potential growth has emerged in the form of the total building permits for dwelling units reaching 51 417 in 4Q13, a growth of 23.2% y/y compared to 4Q12. Permits for houses rose by 14.7%, whereas permits (excluding houses) grew by 33.8% during the same period. The research suggests that the forecast-period outlook for construction in Australia remains positive due to low interest and unemployment rates and improvements in consumer and investor confidence.

According to the Australian Bureau of Statistics (ABS), the seasonally adjusted number of permits for total dwelling and non-residential units combined in February 2014 measured 16 669, an increase of 23.2% y/y compared with February 2013. According to the Commonwealth Bank of Australia, the supply of new housing units per year is 154 000, whereas the country needs around 170 000 units, based on an average population growth of 1.6% a year. Over the forecast period, growth in the residential market will be driven by the need to balance housing unit demand and supply.

Infrastructure spending

Timetric notes that the government’s focus on road and rail infrastructure development is expected to support economic growth and improve regional connectivity. In its 2013 – 2014 budget, the government allocated AUS$24 billion (US$23.3 billion) under the Nation Building Programme to expand the country’s road, rail and port infrastructure by 2018 – 2019.

Low interest rates to improve investor confidence

The Reserve Bank of Australia cut its policy interest rate to a record low of 2.5% in September 2013, a level at which it has remained. The report states that this helped to support an improvement in business confidence across various sectors, which is expected to contribute to demand for office buildings. Furthermore, the higher yield on asset prices, better leasing conditions and the recovery of the Australian real estate investment trust has helped attract investors to purchase office buildings. As a result, the office buildings category is expected to expand over the forecast period.

Adapted from press release by Rosalie Starling

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