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Mid-year report: Construction sector on the rise


It's certainly been a great year so far for Australia's property industry. Strong levels of construction activity, especially in the residential sector, have provided a healthy pipeline of projects, generated numerous jobs and added to the overall economic well-being of the country.

With construction companies in particular revelling in this prosperous environment, property investors will also be thrilled with the high numbers of projects coming through. With the help of powerful investment appraisal tools, those looking to expand their portfolio can step into the burgeoning market with confidence.

Having just surpassed the halfway point of 2014, it's worthwhile taking a look back on the year that's been. And as a range of reports from across the industry show, it's certainly been a successful one - with promising signs of what's to come.

PCI expands for first time; maintains growth

The Australian Performance of Construction Index (PCI), produced each month by the Australian Industry Group (Ai Group) and the Housing Industry Association (HIA), is one of the most closely monitored gauges of activity in the industry.

Having remained in contractionary territory (below 50) for some time, the index provided a timely boost right at the halfway point of 2014 when it expanded for the first time this year in June. The June index was recorded at 51.8, a healthy rise of 5.1 points from the previous month, with residential building leading much of the charge.

It didn't end there though, with the index posting further growth in July. Although the increase that month (0.8 points) was not as substantial as the previous, it nonetheless keeps the index firmly entrenched in expansionary territory at 52.6 and shows glimpses of what could be a prosperous remainder of the year.

What was most encouraging in the latest index was that growth was recorded in three of the four industry sub-sectors. The sub-indexes for commercial construction, apartment building and house building all posted healthy increases, of 11.4, 2.7 and 3.4 points respectively.

"In July, momentum in these sub-sectors ensured the overall construction sector remained in positive territory despite the ongoing slow-down in engineering construction as investment in mining-related projects fades," said Peter Burn, director of public policy at the Ai Group.

"While house building has been strong for some time and apartment building is at healthy levels, the broadening of growth to include commercial construction is a welcome addition to the mix."

Spotlight on residential building

As the PCI has demonstrated, residential construction has certainly been leading the way this year. Other recent findings from around the industry only corroborate this view.

The HIA, for instance, reported in early August that Australia is currently witnessing a strong level of both new home building and lending. According to the Winter 2014 edition of the group's National Outlook report card, new dwelling commencements are expected to reach more than 184,000 this year. If this eventuates, it would be the second highest level on record, the HIA revealed.

Accordingly, the HIA also found that there was a strong level of new home lending in the country as Australians look to take advantage of low interest rates and snap up properties. Citing figures from the Australian Bureau of Statistics, the HIA announced that new home lending increased 12 per cent over the 2013-14.

"With lending rates remaining very low, turnover in the established home market has risen, as have home prices. The residential construction industry has responded strongly to these signals," explained HIA Economist Diwa Hopkins.

"In terms of new home lending being a leading indicator of residential building, today's housing finance figures suggest home building activity should continue its strong recovery as we progress through the second half of the year. There are already signs that the improved supply of dwellings may have taken some of the heat out of price growth, with dwelling price growth decelerating in 2014."

It's certainly a promising time to be in the property investment market, with a continuously strong pipeline of housing all but secured. Armed with property valuation software, those stepping into the market can rest assured that they are making sound, quantified decisions.

Date Published: 08 Sep 2014

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