Tough times ahead for building sector

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New building activity is expected to remain flat over the next two years, says a new report.

Property research firm BIS Shrapnel is forecasting that national building commencements will be 'close to flat' throughout the 2010/11 and 2011/12 financial years, due to federal government support for the building industry falling away over the period.

“The First Home Buyer Boost scheme, social housing and the Building Education Revolution programs were vital to the recovery in the building pipeline," said BIS Shrapnel's senior economist, Jason Anderson. "However, first-home buyer numbers are down by 50% over the first half of 2010, compared to the first half of 2009, and non-residential building approvals have trended down sharply over the past six months."

Apartment projects are likely to be one of the few bright lights, says the research firm, and will deliver a “substantial upside” for the national economy. Anderson suggests this will be particularly strong in Sydney, due to the stamp duty relief for new dwellings in New South Wales.

Private sector non-residential construction is projected to drop by 3% – a figure that is considerably worse than the Commonwealth Treasury’s latest upbeat forecast for a 7.5% rise. BIS believes this could be a drag on economic growth, which combined with a 27% decline in net overseas migration to 175,000 people, will constrain retail sales growth.

The firm reckons that the “relatively favourable” interest rates a slower growth environment would bring should encourage a recovery in first-home buyer numbers over the first half of 2011, which would also “buoy upgrader and investor demand for new dwellings”.

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