Residential Construction Activity on Roller-coaster Ride

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Tuesday, April 5th, 2016
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Some heat has come out of Australia’s property market, despite a healthier building approvals print in February.

Approvals for the construction of new homes rose 3.1 per cent in February, thanks to a 7.6 per cent bounce in the volatile apartment segment.

“However, this followed a 6.6 per cent decline last month, they are down nine per cent year-on-year and the trend is clearly down,” AMP Capital Investors chief economist Shane Oliver said.

He said home building will stay at historically high levels, but its contribution to economic growth will slow over the year ahead.

“This may also be exacerbated as wealth effects from housing slow as momentum in Sydney and Melbourne property prices cool down,” Dr Oliver said.

St George senior economist Hans Kunnen said approvals are now 12 per cent below the record peak of March last year.

“Activity appears set to fall to more normal levels,” he said.

“That said, forecasts of housing oversupply in all capital cities except Sydney are emerging.”

And while the pipeline of housing construction work is set to ease in 2016, it will continue to be supported by low interest rates and a rising population, he said.

JP Morgan economist Ben Jarman expects multi-units, which drove the growth in February, to suffer the most going forward.

Mr Jarman said the more stable detached houses segment is more indicative of the downtrend, which fell 1.2 per cent in the month.

JP Morgan forecasts residential investment to become a slight drag on real gross domestic product growth this year.

Over the 12 months to February, building approvals were down nine per cent, the Australian Bureau of Statistics said.

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