The Australian Industry Group's performance of construction index rose 3.9 points to 47.6 in September from the previous month, remaining below the 50-point level separating contraction from expansion however adding fuel to the fire of an emerging economic recovery. As the index reached its highest point in almost three and a half years, AIG’s chief economist Julie Toth confirmed that the construction sector is closer to stabilisation than at any time since that previous high in mid-2010. Ms Toth says the pickup in construction activity comes on the back of a rebound in housing, which is aiding a rebalancing of growth in the economy as mining investment slows. According to Ms Toth, "The housing and apartment sectors are driving the industry's improved performance on the back of lower interest rates and a lift in buyer sentiment." She was quick to point out that despite the optimism, caution must still abound as hiring in the industry recorded a fall in September, confirming that the operating environment remains tough, challenged by tight credit conditions and weak building activity in the public sector. Improvement in the construction sector is occurring alongside other parts of the economy beginning to respond the historically low interest rates, including retail, housing and manufacturing. All of these sectors have been targeted by the RBA over its easing period that began in late 2011 as mining began to cool off. The most recent rates call was a hold at 2.5 per cent, coming on the back of improvements across these sectors, with more and more economists beginning to speculate that the easing cycle has finally reached its end.
Also this week, the RP Data Pain and Gain report showed that 12 per cent of homes sold in the June quarter realised less than their purchase price, blowing away the assumption that housing prices never fall. The figures, based on gross profits and losses, make for a total value loss of $531 million across the 12 per cent of homes that lost value, while the remaining 88 per cent exceeded their previous sale price by a total of $12.1 billion. According to the research firm, losses are most likely to be incurred in ‘lifestyle markets,’ such as regional Queensland which saw losses result from 27.5 per cent of sales. Weakness in the sunshine state was most evident in markets such as the Gold Coast, Sunshine Coast and tropical north. Gold Coast saw 36.3 per cent of sales made at a loss, while the Sunshine Coast was 29.9 per cent and the tropics were 34.6 per cent. Meanwhile, losses made up just 5 per cent of sales in Perth, 6.2 per cent in Sydney and Canberra, and 8.1 per cent in Melbourne. RP Data says the figures provide a clear indication that real estate investors are better off focusing on long term investment as opposed to turning quick profits. Illustrating this point, the length of ownership ahead of loss-making sales averaged only five years. In contrast, the time between purchase and resale for all profit-making sales averaged 9.6 years, 15.7 years for homes sold for at least twice their purchase price.
Real Estate figures
Recapping that AIG data:
Australian construction has risen to a three-and-a-half-year on the back of a recovery in the housing sector and improving buyer sentiment. The Australian Industry Group and Housing Industry Association Performance of Construction Index (PCI) added 3.9 points to 47.6 in September but remained below 50 which indicates the sector still sits in contraction territory.
Australian auction results
This week’s auction results across Australian capital cities: Sydney recorded a 82 per cent clearance rate from 206 properties for auction, Melbourne cleared 75 per cent from 521 properties, Brisbane had a 52 per cent clearance rate from 23 properties listed and Adelaide cleared 77 per cent from 21 reported auctions.
Commercial property sector
Commonwealth Bank of Australia
(ASX:CBA) boss Ian Narev has acknowledged the risk of the housing market overheating amid strong demand and low interest rates, however says a property bubble is unlikely with banks behaving prudently. He also says he’s aware of the risks that rapid price growth could become dangerous if it continued for an extended period. Mr Narev says fears about the housing market overheating were justified, but he was not yet concerned about a bubble forming.
Sunland Group Limited
(ASX:SDG) has abandoned its bid to challenge the Victorian Court of Appeal’s decision to make it pay special costs of between $6 and $7 million relating to a controversial waterfront property deal in Dubai. In September the Court of Appeal ordered the property developer to pay the legal costs relating to various appeals surrounding the epic four year case involving Australians Matt Joyce and Angus Reed. Sunland has declined to comment on whether the developer was planning to proceed with its application to the High Court for leave to appeal the main case.
