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Australia's construction boom

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World Cement,

The residential construction sector has been a major driver of growth in Australia’s overall construction industry in the past two years, with the rising investment in high-rise residential projects being a key factor in the sector’s rapid growth.

According to Timetric’s Construction Intelligence Center (CIC), the total value of new residential construction output in Australia expanded by 12.7% in 2015, accelerating from 11.3% in 2014 and 4.8% in 2013. The single-family housing market remains the largest, accounting for 57% of total new residential construction output in 2015, but it has been growing at a relatively slow pace. In 2014 and 2015 the expansion in the value of work done on new housing construction was up by an average of 8%, whereas the expansion in other residential (comprising mainly low- and high-rise residential units) expanded by 17.4% in 2014 and 20% in 2015. In the fourth quarter of 2015, the year-on-year increase in value of work done in other residential reached 28.8%. Owing to this expansion, the multi-family housing sector's share of total new residential construction work rose from just 32% in 2010 to 42% in 2015.

Although slowing from the recent highs, the overall residential sector will continue to expand in 2016, driven by the large pipeline of projects, particularly in major cities where demand remains strong and foreign investor interest continues to push up the value of the property market.

Danny Richards, Lead Economist with Timetric’s CIC comments: “Assuming interest rates remain at very low levels over the next few years, investment in residential properties will remain solid, while population growth (at around 1.4% a year) will be sufficient to provide support for new residential projects, particularly given relatively low levels of net overseas migration. Investment from abroad, particularly other parts of Asia, will also remain a major driver in the high-rise residential boom in major cities across the country.”

However, the rapid expansion in construction of high-rise residential properties will come to an end in 2017. The latest data from ABS reveals a slowdown in the pace of increase in the value of dwelling units approved in new residential buildings. On a 12-month moving average basis, in February 2016, the value of building approvals for apartment blocks with four or more floors was up by 34%; although still high, this is the lowest increase in nearly a year.

The introduction of new taxes in the property market, growth of low wages, and the deceleration in the rate of expansion in China’s economy, which has been a major source of foreign investment, also suggests the boom in residential construction will subside. Macroprudential measures have also been applied to bank lending to control the property market, and these appear to be having the desired impact on slowing growth in housing credit.

Timetric's CIC expects the new residential construction market in Australia to rise to a value of AUD57.4 billion in 2016, up from AUD53.4 billion in 2015. It will ease back in 2017-2018, before resuming a more stable rate of growth in 2018.

Adapted from press release by Joseph Green

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