Australia is in the early stages of a strong upswing in housing construction activity.
Deloitte Access Economics forecasts dwelling investment to grow nationally by a robust 6.5% per annum over the next five years. New South Wales construction is already growing strongly and is forecast to grow 7.5% p.a. after 9.0% growth in 2012/13, while Queensland (11.1% p.a.) and Western Australia (10.1% p.a.) are forecast to bounce back strongly over the next five years after recent subdued construction. The major exception is Victoria, which is forecast to see only 1.4% p.a. growth over the next five years after much stronger growth than other states over the past five years.
With housing pivotal to Australia’s expected domestic economic recovery in coming years, it seems an appropriate time to think about what impact this will have on commercial property markets.
Firstly, it is important to delineate the direct and indirect economic impacts of housing activity. The direct impact on GDP growth that comes from housing construction boosting investment is potentially the smaller of the two – housing investment historically is typically around 5.6% of total GDP, so the strong growth forecast over the next five years will add around 0.3 percentage points to GDP growth per annum.
This is likely to be overshadowed by the harder to estimate indirect impact on private consumption (which is typically 53% of GDP). This consumption impact comes via households furnishing new housing, plus a ‘wealth effect’ that exists when households feel more confident to consume as asset values rise. This wealth effect of housing is particularly strong in Australia because most financial assets investments Australians make are in superannuation accounts not accessible until retirement and because housing investment has been historically popular due to tax incentives.
For retail and industrial property markets, the benefits of strong housing activity appear fairly clear. The lift in consumption expected will generally boost demand in both sectors, while the industrial sector will also benefit slightly from increased demand for building material manufacturing and distribution. Retailing and warehousing demand for household goods in particular are likely to generate much stronger levels of demand, following an extended period when this more discretionary retail category has been weak and volatile.
For the office market, the benefits are less obvious. However, the table below shows that employment in most industries, particularly white-collar industries, is highly correlated with housing investment. While this correlation does not imply causation, it does lend support to the strength of the indirect impacts of housing activity and suggests that strong housing markets go hand-in-hand with strong employment growth. The slightly lower correlation of finance and insurance employment reflects the global exposure of this sector, but a domestic housing recovery is certainly likely to boost credit growth and employment in this significant driver of office market demand.
A housing-led recovery is one that will eventually ‘lift all boats’ and benefit property demand in all sectors. For office market demand this is likely to mean a very broad and ‘bottom-up’ recovery in leasing demand that may be hard to notice initially due to its organic nature, but we can have faith that will happen.
Leigh Warner is a Director of Research for Jones Lang LaSalle, Based in Brisbane, Australia.
Original article published at www.urbandeveloper.com 5/12/2013
Land developers call bottom of property market
Land developers AV Jennings and Villa World have called the bottom of the property cycle after a year of slumping sales and consumer caution blew a hole in their profits.
AV Jennings said the current property cycle has “bottomed” and that it will deliver a stronger result next financial year, after its profits were cut in half to $16.4 million by wary homebuyers steering clear of big commitments.
“General market sentiment is clearly beginning to improve … a modest uptick in visitor numbers to sales offices and online is evident and is expected to be sustained during FY20,” AV Jennings said.
Villa World chief executive Craig Treasure said soft consumer sentiment, tight credit conditions and the uncertainty caused by the federal election had created “difficult headwinds”.
“We are seeing that sales enquiries have started to improve across Villa World’s projects, however buyers remain cautious,” he said.
Villa World’s profit after tax of $23 million was also shredded compared to the previous year when it earned $43.6 million.
“This result is consistent with commentary disclosed to the market since December 2018 and reflects the decline in the Australian residential housing market and softer consumer sentiment,” Mr Treasure said.
Villa World’s land projects are concentrated in Queensland and Victoria.
All metrics for the group suffered: earnings per share were down 48 per cent to 18.2c, total revenue fell 11 per cent to $391.6 million, and sales numbers slumped to 870, down from 1788 the previous year.
The property pain was similar at AVJennings where turnover fell 20.3 per cent to $296.5 million and profits crashed by 48 per cent.
“The lower profit reflects softer market conditions, particularly in Melbourne and Sydney,” the company said.
It paid an interim dividend of 1c on 22 March and will pay another 1.5c dividend on 20 September this year.
Villa World has agreed to a takeover by AVID Property group for $2.345 per share. It will declare a fully franked dividend of 31c, as a portion of the total takeover price if it goes ahead.
Brisbane Prices Could Be Headed For Recovery
Brisbane prices are at their lowest level in the cycle, according to the latest national property clock from Herron Todd White (HTW).
The house values in Brisbane, Bundaberg, Ipswich, Rockhampton, and Toowoomba were at the bottom, according HTW.
Meanwhile, prices in Cairns, Gladstone, Mackay, Townsville, and the Whitsundays are starting to recover, the data showed.
There was momentum for the price growth in Brisbane, given that the capital city had been “bouncing along the bottom for some time now”, HTW Brisbane managing director Gavin Hulcombe told The Courier-Mail.
“I think it will be (a) steady rise, but my suspicion is in a couple of years’ time we might look back and think it (now) probably wasn’t a bad time to buy. Some areas are likely to perform better than others,” he said.
Brisbane units are also at the bottom of the price cycle, along with Bundaberg, Ipswich, Mackay, Rockhampton, Toowoomba, and the Whitsundays, according to HTW.
Apartment prices in Cairns, Emerald, Gladstone, and Townsville are already rising, the figures showed.
Index warns council unit ban will impact boomer downsizers
A new housing index has warned that Brisbane will face a flood of ageing baby boomers with nowhere suitable to live unless it embraces greater density in suburbs where houses dominate.
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