Embattled NSW builders set to get a constructive boost: Deloitte

NSW will be the epicentre of a housing construction recovery in 2013 following years of underperformance, according to the latest Business Outlook report from Deloitte Access Economics.

Deloitte is forecasting a 9.7% rise in private housing investment in NSW in 2013-14 followed by annual rises of 9.3%, 8.4% and 11.1% in the three subsequent years to 2016-17.

This lift in housing construction, which should “comfortably outperform the size and speed of the national recovery”, is expected to drive an overall improvement in the state’s economy.

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“New South Wales’ housing sector is expected to see some good news – which will be something of a welcome change for a perennial underperformer,” says Deloitte.

“In the main that is due to lower mortgage rates, with the latter expected to work their usual magic, but it also helps that land release is expected to accelerate, and that while rental vacancy rates have increased, they are still signalling a need for new housing stock.

“Moreover, while we note the news on the population front has been less than impressive, it is still true that overall population growth in NSW is improving.

“That won’t generate a massive housing recovery, but NSW’s performance should better than in other states, if only because its housing construction sector has been so weak for so long,” says Deloitte.

Other good news includes job growth lifting from early 2012 lows, nearly full hotels due to healthy numbers of business travellers and a “pretty full” NSW Government’s capital spending agenda is pretty full with investment in roads and railway and on the commercial front, projects like Barangaroo and the redevelopment of the Sydney Convention Centre at Darling Harbour.

It isn’t all positive news in the NSW property market with Deloitte noting that rental vacancy rates are climbing, while approvals for renovation work remain in the doldrums.

The recover in housing construction in NSW is part of a national recovery sparked by lower interest rates.

Alongside housing construction, Deloitte also expects a recovery in the retail sector from the second half of 2013 onwards as the mining boom “hurtles towards a peak” in 2013.

However, it says the Australian dollar is “still giving manufacturing a Chinese burn, and the news also remains modest in both tourism and international education” – all key non-mining sectors that need to life to take up the slack from mining investment peaking.

As a result, the report anticipates that lower interest rates are set to linger.

Looking at the other states , the report has favourable economic expectations for WA, Queensland (though not completely out of the woods) and the Northern Territory, with more modest expectations for Victoria and the ACT and gloomy ones for Tasmania and South Australia.

Victoria, Deloitte says, is more dependent on the Australian dollar (where as NSW is interest rate sensitive) meaning a recovery is further off with the state’s economy losing a little momentum in 2013.

And while the report says interest rates are expected to also have a positive impact on housing construction in the state, it notes that Victoria’s housing construction sector is “no longer the 400 pound gorilla that it was for some years”.

“The key albatross on the outlook is simply this state’s past successes in housing activity – which means it hasn’t got anything like the pent-up demand evident in some other key states.

“As we have often noted, that leaves the overall housing construction outlook in this state projected to be solid enough, just somewhat less impressive than it is for other parts of the country,” says Deloitte

Rate cuts and accelerating population gains are expected to spell “rather better news in the housing construction sector in Queensland” while Deloitte says in WA leading indicators of housing construction activity have been “showering sparks all over the dragway as they accelerate after a period of slowdown”.

The biggest problem facing the national economy is the “Godzilla-like “strength of Australian dollar, which Deloitte says remains a problem for job prospects in a range of sectors and which is acting against a welcome pick up in migrant numbers.

This article first appeared on Property Observer.