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2 April 2007

Building price growth continues to surge

Australia's quantity surveyors expect workloads to continue rising over 2007, according to the latest Westpac/AIQS BRIX Building Survey. The level of confidence peaks in the June 2007 quarter, with a net balance of 45% of respondents expecting workloads to increase. Confidence remained very stable over the entire survey period, with the usual low in the fourth quarter of the survey period (December 2007) only falling to a net balance of 35% of respondents expecting workloads to increase. However, sentiment improved in all quarters of the December survey period, with the exception of the second quarter, which was only 3 basis points lower than the comparative period in the September survey.

The survey of Australia's major quantity surveying companies is conducted quarterly for Westpac and the Australian Institute of Quantity Surveyors (AIQS) by Dr Anthony Mills at RMIT University, Melbourne and covers in excess of $18 billion worth of projects. The survey examines each phase of the construction cycle: pre-construction, during construction and post-construction.

"Although we have seen three interest rate hikes in 2006, the lift in sentiment is not that surprising given the strength of the commercial market and the high prices being achieved for existing properties," said Frank Allen, Westpac's Director of Property Markets. "In some cases the extent to which commercial yields have fallen is encouraging the prospect of new development, particularly in the retail sector. In the office sector it is a case of new development is needed in many markets, but particularly in Brisbane and Perth. Although we aren't forecasting a lift in residential prices, a shortage of supply in most capitals just as population growth is gathering pace again suggests a need for new starts. Developers would be aware of this and setting themselves for when the markets picks up."

"Interestingly in the December BRIX survey the level of optimism from Western Australian respondents declines significantly in the final two quarters of the survey period (September and December 2007). This isn't particularly surprising given the slowdown in the residential market demand in Perth, which started in the latter half of last year. This will be coming from a high, so a slowdown in sentiment is not that unexpected and it should be noted that sentiment was still positive in WA, just less so than in the past" said Mr. Allen.

At no stage during the survey period did a net balance of respondents from any state expect workloads would fall.

Building costs are still rising, with Quantity Surveyors reporting a growth rate of 6.5% for the year to December 2006. Respondents expect that building costs will rise by 6.3% in the year to December 2007.

"The 6.5% growth rate reported for the year to December 2006 was higher than respondents forecast a year ago. In December 2005 respondents indicated they thought building cost growth would be around 5.5% for 2006." said AIQS General Manager Terry Sanders. "The rate of growth for the year to December 2006 was also the highest reported in over a year, since the September 2005 survey."

"The level of growth varied considerably across the major states. Reported changes in building costs in the major states over the year to December 2006 ranged from 4.3% in Victoria to 12.6% in Western Australia," said Mr Sanders. "Looking forward, expected building price cost growth over the 12 month forecast period is expected to be strongest in Western Australia at 10.7% and lowest in New South Wales at 4.1%."

Some trades have experienced more pressure on costs than others. The Suspended Ceilings trade had the highest cost growth in the December 2006 quarter at 6.2%. Plastering saw the smallest cost rise at 0.8% over the quarter.