Construction boom coming to an end, October data shows


November 07, 2016 19:35:15

Australia’s multi-year construction boom engineered by the Reserve Bank to stimulate the property market is coming to an end.

Key points:

  • AIG’s Performance of Construction Index fell 5 points to 45.9 in October
  • Peter Kerras from Colliers International said Sydney construction was still booming
  • Earnings of the big four banks has dropped for the first time since the GFC

At least that is the message from the latest private sector data showing total construction work around the country contracted in October.

The Australian Industry Group Performance of Construction Index has fallen 5 points to 45.9 — a 20-month low.

The drop in figures is significant, according to Peter Burn, head of policy at the Australian Industry Group.

“That’s a quite a noticeable contraction in activity,” he said.

“The performance of construction activity is made up of four sub-sectors, and each of them is in negative territory in October.

“House building, apartments, commercial construction, and engineering construction — all negative.”

While it is hard to make out a trend from one month’s figures alone, Mr Burn was confident construction activity would continue to slide.

“I think it’s probably constructors going, ‘Well we’re less sure about the ability to sell the next batch, so we’ll hold off any plans that we have, or we won’t put new plans in place’, and they might just shelve plans altogether.”

But Peter Kerras from Colliers International said business in Sydney was still booming in spite of the new figures.

“I can tell you we have more business than we’ve ever had at the moment,” he said.

“We’ve got seven launches at the moment prior to Christmas, and we’ve got interest in everything.”

Mr Kerras currently has big apartment projects in the works in Kogarah to the south of the city, and Lindfield and Gordon to the north.

He said the data did not necessarily reflect an end to the construction boom everywhere.

“I’m a bit sceptical when people talk about national figures, because we’re in a bit of a bubble here in Sydney,” he said.

“When you tell someone in Sydney about national figures and it’s a negative message, they may make the wrong decision based on that, and you might find Sydney is perfectly fine.”

Bank earnings drop for first time since GFC

There is other evidence of an overheated property market.

New analysis has found the earnings of the big four banks has dropped for the first time since the global financial crisis.

Westpac’s annual cash earnings were announced today, falling by nearly 3 per cent to just under $30 billion.

A rise in bad loans suggests the need to put aside more money for reserves and less demand for credit has pulled profits down.

Bad loans are now at their highest level since 2012.





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