IS IT BOOM OR BUST AS BUILDING APPROVALS SPIKE TO A NEW HIGH?

Written on the 4 March 2015 by Nick Nichols

IS IT BOOM OR BUST AS BUILDING APPROVALS SPIKE TO A NEW HIGH?

THE pace of housing development has ramped up to a new high in Queensland with the state recording more than 5000 building approvals in January.

The latest figure, 5034, is up 47.7 per cent on the December approvals and up from 3339 in January last year. It also marks the first time approvals have breached 5000 in any single month.

The growth has come almost entirely from the apartment market, and while Master Builders is forecasting boom conditions ahead for the construction industry, it also has prompted some commentators to call it a property bubble in the making.

QUT property economist Professor Chris Eves is the latest to warn of a crash in Brisbane's inner-city markets, including Southbank and West End, with what he sees as a glut coming to the fore in 2016.

However, Master Builders' deputy executive director Paul Bidwell says there are no indications yet that a glut is emerging. He says a meeting this week with builders across the state has indicated activity rising, particularly in Brisbane. He says few are saying they are "flat out" and many are still looking for work.

"There is some squeeze on the cost of construction, but it's not a major issue yet," says Bidwell. "As this level of activity gathers momentum, we will see skills shortages and rising costs, but we don't see any evidence of that at the moment."

Master Builders is expecting Queensland building approvals to reach 40,000 this financial year and 45,000 in FY16.

"There's talk at the national level over how long these good times are going to continue. We're not sure what's going to happen after 2016, but the fundamentals are still there (for Queensland). We still have 2 per cent population growth in Brisbane and interest rates are still low. Unemployment remains the only issue for confidence."

Bidwell says the January spike is thought to be primarily linked to the Commonwealth Games Village complex on the Gold Coast, although this has yet to be confirmed.

"Dwelling approvals rose from 3407 in December to 5034 in January (seasonally adjusted), and although we must view this enormous spike as something of an aberration, it doesn't change the fact that it is good news for residential construction in Queensland," says Bidwell.

"The growth can almost entirely be attributed to a growth in multi-unit construction approvals, which was driven by investors and more than doubled this month."

However, QUT's Eves is concerned that developer confidence is heavily underpinned by offshore investors, arguing that the current buying trend is not likely to continue.

"The prevailing view is that the Asian market will continue to buy but, as we've seen with the resources sector, that is not guaranteed to last," says Eves.

"The apartments are marketed overseas and many people in China want to buy them. But it's a big assumption that that will continue. In a government-controlled economy, the government could say 'no more money out of the country'.

"We never learn. The Gold Coast apartment building boom in the 90s relied on an endless demand from Japanese buyers but when Japan's economy crashed, developers were left with empty stock and it took years to recover.

"Two or three years ago you could buy a Gold Coast waterfront, two-or three bedroom unit for less than a two-bedroom unit in Brisbane.

"People who buy a unit in the CBD for $600,000 now off the plan will find when it comes to settle they may have to settle for a market value as low as $400,000 in an oversupply situation, as has occurred in markets on the Gold and Sunshine coasts.

"It's a two-tier market. Overseas buyers can buy a new unit for $560,000, while a similar one that is four or five years old is selling in the local market for $300,000 in the same area so the new $560,000 overseas-owned unit will have to be priced back down to that local tier for a resale."


Eves' top tips for property investors in the current market are:

 

  • Look for a house or a unit where strong domestic demand exists, not international demand;
  • Look at middle inner and outer inner fringe units;
  • Don't buy off the plan;
  • Look for suburbs with good schools, transport and city access.

Author: Nick Nichols

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