Turf QLD Industry Alert |Ai Group ECONOMIC UPDATE (April 2nd)

Ai Group ECONOMIC UPDATE (April 2^nd)

AUSTRALIAN ECONOMIC DEVELOPMENTS

Data released this week highlighted that investor activity remains the main driver of the Australian housing market, with the latest RBA data showing investor finance is growing at almost double the pace of owner-occupier housing finance. Higher established dwelling prices have also encouraged increased residential construction activity over the past year, with residential building approvals, in particular multi-dwelling developments such as high-rise apartments, remaining near historical highs in February. The RBA data showed that demand for finance by businesses has also strengthened. But this has not translated into higher commercial construction activity as non-residential building approvals stayed at very low levels in February. Finally, the latest Australian PMI® showed that the manufacturing industry contracted for a fourth consecutive month in March, even though a lower Australian dollar has boosted manufacturing exports over recent months.

Housing prices and borrowing continue to increase

The latest RBA data showed that total private sector credit (or borrowing) grew by 0.5% m/m in February to be 6.2% p.a. higher (seasonally-adjusted). Much of this growth was driven by lending for housing, which rose by 0.5% m/m and 7.2% p.a. in February. But business credit has also strengthened in recent months. It grew by 0.6% m/m in February to be 5.6% higher over the year. This represented the fastest pace of annual business credit growth since February 2009. The strength seen in the Australian housing market continued to be driven by investor activity, mainly in Sydney and to a less extent Melbourne. In particular, growth in borrowing for housing investment remains elevated, at 10.1% p.a. in February (the highest annual growth rate since February 2008), although the pace of growth has slowed in recent months. Meanwhile, loans for owner-occupied housing increased by 0.5% m/m in February to be 5.7% higher over the year. The strength in the housing finance can also be seen in established dwelling prices. The CoreLogic RP Data Home Value Index indicated that dwelling prices across the five major capital cities rose by another 1.3% m/m in March to be 7.5% higher than a year ago. Most of this growth was concentrated in Sydney (+3.0% m/m; +13.9% p.a.) and to a less extent, Melbourne (+0.6% m/m; +5.6% p.a.). Established dwelling prices in Brisbane fell by 0.25% m/m in March and only 3.0% higher over the year, while prices in Perth were flat in March and declined by 0.05% over the year.

Residential building activity concentrated in apartments

Building activity continues to be concentrated in new apartments while houses have flattened and non-residential construction activity has been weak.

The number of total dwelling units approved grew by 14.3% p.a. (-3.2% m/m) over the year to February, which owed to a strong lift in approvals for the volatile “other dwellings” component, which includes apartment blocks. Although approvals for “other dwellings” declined by 6.0% m/m in February, it has grown by 36.2% over the past year. In contrast, private sector houses approvals were flat (-0.1% m/m) in February and slightly lower over the year (-1.0% p.a.).

The value of non-residential building approvals, which include commercial, industrial and other public buildings (e.g. hospitals, schools and community facilities), fell for a second month in February by 1.4% m/m to be 17.7% lower than a year ago. The ongoing weakness in non-residential building approvals comes at a time when engineering construction is also slowing due to the sharp slowdown in mining investment. Looking ahead, low interest rates should support building activity. But the RBA says a lift in confidence, or so called “animal spirits”, is needed to boost investment activities.

ACTIVITY BY SECTOR

• House building activity declined for a third consecutive month in February. However, the rate of contraction moderated with the sector’s sub-index rising by 4.5 points to 45.4 points in February. This is in line with slower orders and private sector house approvals (ABS data) in recent months.
• The apartment building sector returned to growth in February, with its sub-index rising by a solid 10.8 points to 53.1 points. This was the strongest reading for this sub-sector since November last year, and reflects recent increases in new orders and dwelling approvals for apartments and other multi-unit dwellings (as indicated by ABS data) in recent months.
• Commercial building activity weakened. The sector’s sub-index decreased by 7.2 points to 41.8 points in February. This is consistent with the generally subdued level of new orders seen over the past four months and the continuation of subdued building approvals trends in this sector.
• Engineering construction activity continued to decline in February, and at a steeper rate than in January. The sector’s activity sub-index decreased by 2.0 points to 42.7 points. This was the weakest reading in nine months and reflects the progressively smaller pipeline of resource related construction projects.n– Public