Property and construction to provide the economic silver lining

Property and construction to provide the economic silver liningAustralia’s economy will face a tough four years as it transitions away from mining, says forecaster BIS Shrapnel. But the property sector, in particular the residential market, could be the shining star of the resurgence.Residential and commercial property construction growth is the silver lining in a cloudy economic outlook for the short to medium term, according to industry analyst and forecaster BIS Shrapnel.The group’s latest Long Term Forecast 2014-2029 report shows domestic consumer demand will experience the weakest four-year period since the early 1990s recession, averaging 2 per cent per annum to 2017-18.”The cumulative 40 per cent decline in resources investment over the next four years, coupled with a stalling in the upturn in dwelling and private non-dwelling building construction and only a moderate rise in public investment, will see total investment actually lower in 2017-18 than current levels, in real terms,” the report said. “Put simply, there will not be enough non-mining investment to replace the loss of mining investment over the next four years.”The transition from an economy driven by the resources construction boom will be slow and difficult, and the high Australian dollar is a roadblock to faster growth, says the report.However, until the overall economy starts to gather reasonable pace, demand for housing and, to a lesser extent, commercial property will be the key economic driver, alongside net exports.”Residential has come through and it’s a strong boost,” said Dr Frank Gelber, BIS Shrapnel’s chief economist. “Always the first out of a downturn.”Indeed, the resurgence in residential property is already here, with BIS Shrapnel stating, “The long-awaited recovery in dwelling investment is now entrenched.”Having been delayed due to weak housing market sentiment and excessive caution by investors, the expectation of low interest rates for an extended period, combined with a substantial deficiency of residential stock, is driving a solid increase in dwellings building.”However, BIS Shrapnel cautions that while momentum will build, the recovery in residential property will not be uniform.Sizeable stock deficiencies will determine which markets drive hardest, in this case parts of Queensland and NSW.The forecaster says non-dwelling building markets will also show growth over the medium term, but it will be moderate. Major projects in the retail, warehouse and accommodation sectors will be offset by declines in hospital construction when the current boom expires.However, Gelber warns that just as the residential property market’s recovery won’t be uniform, neither will the commercial property market’s growth phase.Of particular concern to Gelber are office markets overexposed to growth during the mining boom, namely Brisbane and Perth. “I think Brisbane and Perth kept building, but demand was strong – the mining sector was strong,” Gelber says. “But now mining investment is falling and the miners are cutting back. All they’ve been able to talk about for (three) years has been cost cutting. They’re battening down the hatches for tougher times, even though they’re still doing well.”As that (demand) comes back, it’s going to hit demand in Brisbane and Perth. They’re still building at boom-time levels.”