Markets

Responses to the Australian Sep. building approvals data miss

The September building permits data is here from earlier: Australia building approvals for September: -8.7% m/m (vs. expected -3.0%)

Responses so far from Westpac and NAB

WPAC:

  • Approvals dropped,... within the range of 'normal' volatility for month to month reads
  • Detail shows a sharp 16.3% drop in units was the main driver in the month ... within this segment the 'usual culprit' when there is volatility - high rise approvals - was down just over 20% in the month but down only slightly on a year ago, reflecting the high starting point following a big surge in July
  • The combined picture from 'non high rise' approvals now show a trend decline for six consecutive months tracking at a 10-15% annual pace
  • The signal from 'high rise' remains much less conclusive - despite the drop it is unclear whether the segment is levelling out or turning down with approvals uneven across the major states as well.

NAB:

  • Building approvals for September lower than expected ... all from a 16.3% decline in apartment approvals
  • The trends in (apartments and house approvals) are close to flat (apartments -0.7% m/m, houses -0.5%)
  • Trend residential approvals still running at an annual rate of 238K ... Still a solid number, but it seems that the cycle is topping out at a high level

CBA (bolding mine here):

  • Annual approvals are 238k -still near the record level of241k of October 2015 - there's a lot of construction coming
  • Non-residential approvals rose to a record $5.55bn in September, to be 98% higher than a year ago
  • In the big picture, annual approvals are still in the 230k to 240k range, which means the construction sector can run near full capacity for the coming year . The very large inner-city apartment blocks can have demolition and construction periods of between 2 and3 years.
  • Recent stories on oversupply of new apartments in 2017 and 2018 need to also bear in mind that national population growth is still running at 320k
  • It means annual housing demandis around 180k
  • After years of underbuilding, Australia now has the prospect of overbuilding which will help moderate some of the issues around housing affordability which covers rents as well as prices.
  • Non-residential building approvals rose to a record $5.5bn in September
  • There were some large rises in approvals for office blocks, retail and hotels
  • An upward shift in the non-residential construction area was long overdue in our view ... It represents another leg in the transition story, along with higher infrastructure spending
  • Combining record low interest rates, rising populations pushing along demand for retail and offices, and record inbound tourism gives a recipe for more construction activity.
  • Commercial office vacancy rates in Sydney and Melbourne are trending lower, not higher
  • So there should be more new office developments announced over the coming year
  • The capital city hotels are running higher occupancy rates as tourism rises

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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