Australia | Jul 24 2006
By Chris Shaw
With the market factoring in a further increase in interest rates when the Reserve Bank of Australia (RBA) meets again in August, it appears the housing market outlook is not going to brighten any in the short-term.
Industry consultant BIS Shrapnel supports such a view, its latest analysis of building activity across Australia suggesting total activity is likely to fall by about 1% in 2006/07. Within this, housing starts are tipped to fall further from current levels while non-residential building activity is likely to increase only marginally.
According to BIS the decline in housing, expected to be about 4%, will be led by Queensland, New South Wales and Victoria, eventually extending to South Australia and Western Australia by 2007/08 as these markets begin to cool.
On the plus side, housing supply is likely to remain below underlying demand over the next two years, while a likely improvement in rental markets and affordability should see a small improvement in the value of new dwelling starts in 2007/08.
The group expects non-residential building commencements to increase slightly this year thanks to ongoing strength in the Queensland and Western Australian markets, but as higher interest rates impact on economic growth the value of activity is predicted to decline by about 6% in 2007/08.
The office market should be relatively strong this year, BIS forecasting a 12% increase in activity driven by good corporate profits. Looking further out the picture is not so rosy though, as it expects a downturn of as much as 50% in the years to 2010/11.
While retail commencements enjoyed a record year in 2005/06 the report suggests a drop is likely over the next two years, while the hotel sector should experience a rebound in activity after 2005/06 was hit by a downturn in occupancy rates in New South Wales in particular.
Of interest to Wesfarmers (WES) shareholders, the report suggests the decline in renovation activity over the past four years may be coming to a close as conditions should show considerable improvement this year. This should be a positive for Bunnings, as it remains well placed to benefit from any upturn in the renovation market.