DIFFERING FORTUNES FOR RESIDENTIAL AND COMMERCIAL CONSTRUCTION

MASTER Builders has forecast 32,000 new housing starts over the next 12 months in Queensland, a 9.1 per cent increase on FY13, but commercial construction remains in a hole according to the organisation’s latest Building Industry Outlook.

Executive director Grant Galvin is confident the residential sector is recovering, with residential building starts expected to rise further, to 35,500 in FY15, with much of the rebound to come from detached and low-rise attached dwellings.

“We know that earlier last year activity levels remained below par as a lack of confidence, job security fears, the ongoing economic uncertainty and tight lending conditions continued to take their toll and dampen demand.

“However, building approvals data gradually trended upwards during 2013 and we are confident that a range of factors, including low interest rates, improved consumer confidence, a more settled domestic political environment, strong economic growth and ongoing population growth, will set the scene for a very positive year.”

Things are not as positive for commercial building, where the hardest hit areas of activity include industrial, retail, new office, hospitality and high-rise apartment construction. The value of commercial approvals dropped below $400 million for the first time since August 2009.

The lack of jobs has lead to intense competition for work and thin profit margins. There are reports of builders quoting jobs at a loss with a view to recovering costs and margin through variations.

“These practices heighten the risk of business failure and are clearly not sustainable in the long term,” says the report.

The weakness in private sector funded work will be the biggest issue for the commercial sector going forward and it is not expected to be resolved quickly.

“The ongoing financial market volatility and economic uncertainty will continue to weigh on commercial construction activity with many businesses likely to remain hesitant to expend capital on non-essential assets until there is a clear improvement in the economic outlook, particularly for the non-mining sectors of the economy.”

The Construction Forecasting Council (CFC) is predicting a very gradual decline in non-residential construction activity in 2013–14 and 2014–15, with the bulk of work in engineering construction.

“Any meaningful improvement in commercial building activity will require a sustained improvement in confidence on the part of consumers and businesses,” says the report.

“Unfortunately, commercial activity is likely to remain weak as the industry grapples with very soft non-mining related private sector demand and the continued reduction in public sector funded work.”