Despite recording a dramatic upswing in the number of property developments, Victoria shows little signs of succumbing to an oversupply issue.

Speaking at the Business Forecasting Conference last week, BIS Shrapnel managing director Robert Mellor said while some parts of Victoria may run into minor oversupply conditions, over the longer term, oversupply will not be an issue.

“Built on the back of strong underlying demand and solid population growth, the Melbourne market will be able to sustain the boom in development for the next two to three years,” Mr Mellor said.

According to the Mr Mellor, dwelling commencements rose by 30 per cent in 2009/10 to 54,500 starts – Victoria’s highest level of construction to date.

Private and other dwelling commencements also increased in 2009/10, growing 43 per cent.

Relatively low land prices were the driving factor behind Victoria’s recent residential development boom.

However recent price hikes are expected to cool the construction boom by at least 7 per cent over the next 12 months.

Mr Mellor said this adjustment will prevent the market entering oversupply in the future.

As the gap between rental prices and mortgage repayments narrows, investors and first time buyers have an opportunity, says Mortgage Choice. The broker has pointed to RP Data figures showing expected increases in capital city rents, and predicted more people may be spurred toward home ownership as a result.

While property investors may look forward to greater rental yields for the year ahead, Mortgage Choice spokesperson Kristy Sheppard said renters are facing significant rises.

“RP Data recently reported capital city rents increased by 4.2% in 2010 and commented that they are expected to rise by 7% this year. To put this into real terms, in Sydney it equates to an extra $23.47 on the average weekly rent of $480 for a house and $30.80 on the average weekly rent of $440 for a unit,” she said.

With these rises, Sheppard said, the gap between renting and servicing a mortgage is quickly closing. She pointed out that even with an expected RBA rate hike in the latter half of the year, repayments on average mortgages are still close to average capital city rent.

“It looks likely we’ll see interest rate rises of around 0.5% by the end of 2011. For a 30-year $300,000 principal and interest home loan at 7% – by no means the lowest rate available – this means $31.30 extra on the required weekly repayment of $460.29,” she commented.

Sheppard said rising rents were the second most common motivation for first time home buyers in the company’s 2011 Future First Homebuyer Survey. According to Sheppard, easing lending criteria can help brokers move renters into the property market.

“When it comes to home loan approval criteria these days, some lenders now consider rental history as genuine savings. A number have increased the amount they will lend to 95% of the purchase price and several are dropping their fixed rates, which is good news for borrowers who need the peace of mind that comes with locking in a guaranteed steady repayment level,” she commented.

(Source: Adam Smith, 22/03/2011  www.brokernews.com.au)

Australia’s million dollar suburbs grew by 35% to total 212 at the end of 2010 when measured by median house price, according to research released by RP Data.

Of the 212 suburbs, the property research firm found 56% were in Sydney, and 20% were in Victoria. Western Australia boasted 12% of Australia’s million dollar suburbs, followed by Queensland (6%), South Australia (3%), the ACT (2%) and Northern Territory (0.5%).

The most expensive suburb was Peppermint Grove in WA, with a median price of $4.6m.

The 35% jump in this “million dollar property club” came despite an overall capital city home value increase of 4.7%, according to Cameron Kusher.

“Over the past five years, the premium sector has typically fared quite well (outside of 2008) and has?recorded strong growth in property values,” he said.

RP Data research shows that in 2005, just 78 suburbs had a price tag of $1m or more, and in just five years that had jumped by 172%. Victoria’s million dollar count has increased 950% in five years.

When grouped by council areas, Ku-ring-gai in Sydney recorded the greatest number of suburbs, with 15?suburbs having a median price of $1 million or greater. Other top council areas were North Sydney with 12 suburbs, followed by Woollahra (10, and Brisbane, Canada Bay and Boroondarra (9 each).

(Source: By Ben Abbott | 16/03/2011)

Construction is “running out of steam” but should start to pick up, according to BIS Shrapnel’s Economic Outlook Bulletin.

BIS Shrapnel argues there will be huge both upwards and downwards fluctuations in some sectors, but aggregate growth will be “solid rather than spectacular”.

“What we’re seeing is rolling construction cycles, with marked differences between sectors,” says Dr Frank Gelber, chief economist, BIS Shrapnel. “In particular, there is a switch from government-funded to privately-funded investment as the primary growth driver. Through all of this, resources investment has remained strong, despite the pause as we switched from one round of projects to the next through the hiccup of the GFC.”

It’s important to look at the different drivers of individual sectors to understand what’s happening in construction, according to BIS Shrapnel.

The clue to the future, it says, is contained in the switch in activity over the last six months. “Before that, both building and non-building construction had been growing strongly – initially under the impetus of private investment, but driven by public spending in the last two years.”

“The GFC, the domestic credit squeeze, the collapse in confidence, the resultant economic downturn and government stimulus played a major role in the course of events,” says Dr Gelber. “Residential building, the non-residential sector and engineering construction were all affected.”

The bulletin highlights government housing more than tripled during the GFC, offsetting the weakness of the private sector, however expenditure on public housing will halve over the next few years.

“Meanwhile, private sector residential building, having picked up a little through the middle of last year has again stalled,” says Dr Gelber. “Only now, as finance becomes available and we dust off medium and high rise developments, are we seeing the first signs of a resumption in the private residential recovery. Growth should pick up momentum over the next two years.”

The organisation notes non-residential building was strong until the middle of last year. The downturn in the private sector began in early 2009 as projects before the GFC arrived were completed.

“It was extraordinarily strong public expenditure, driven by a doubling of expenditure on schools and strong investment in hospitals, which offset much of this decline until recently,” says BIS Shrapnel. “But now, over the last six months, public expenditure on non-dwelling building has been winding down as projects are completed.”

“With private sector commercial and industrial building slaughtered by the lack of funding throughout the GFC, and still weak, total non-residential building has fallen sharply over the last six months,” says Dr Gelber. “The government sector has further to fall and the real issue is how quickly a recovery in private investment comes through to take its place.”

Non-residential building is expected to fall four per cent this year, followed by a further drop of 10 per cent in the next financial year “as recovery in the private sector is offset by falling government funded construction.”

BIS Shrapnel says public construction has risen by more than 50 per cent over the last two years. It expects it will grow by two per cent this financial year and then drop by 20 per cent over the next two years.

Total private construction is expected to rise by around four per cent this year and average 10 per cent growth over the next two years.

Growth in total construction has moderated to around four per cent this year, BIS Shrapnel says, and a similar result is expected next year before “picking up pace”.

(By:Switzerbroker Bulletin www.switzer.com.au, Published on: Friday, March 04, 2011)

Building approvals slumped dramatically in January, reigniting concerns about the ongoing level of underbuilding in Australia.

According to the Australian Bureau of Statistics, total residential building approvals fell by 15.9 per cent in January to be 24.8 per cent down year on year. The falls were worst in Tasmania with a decline of 34.9 per cent in building approvals, followed by Queensland at 29.9 per cent and South Australia at 20.9 per cent.

Residential building groups have been quick to voice their concern over the figures.

Peter Jones, chief economist at Master Builders said the latest setback was not simply due to weather events but more to do with caution in the face of ongoing interest rate hikes.

“The much anticipated upswing in residential building activity is now in doubt with further fallout expected to dampen prospects for a private sector revival in residential building.

“A long and strong residential building upturn is desperately needed given that we have been underbuilding in Australia over the past six or seven years.”

HIA senior economist Andrew Harvey echoed similar sentiments.

“The January 2011 fall in approvals is the worst monthly decline we have seen since September 2002 and as HIA has been noting for some time now we are in for a considerably weaker year of residential building in 2011,” he said.

“Moreover, it reinforces the urgent need for a dedicated housing ministry in the Gillard Government and serious reforms to the supply side of Australia’s housing market.”

On a more positive note, Harry Charalambous, CEO of Plan Assist, sees opportunity.

“This is a great opportunity for smaller developers who have the foresight to work with Government in filling in the gaps in housing. There is going to be a shortage of housing from this, possibly a shortage right now. In this low point in construction, creating solutions for quality sites will produce returns.”

“To capitalise on these returns, investors and developers should be preparing for the next cycle, preparing resources, preparing contacts, and in particular, cashing up for the next cycle. With demand for quality dwellings growing each month, we see a rosy future for those who have prepared in the low season.”