Brace for Australia's housing boom

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Despite concern of worsening housing affordability brought by rising interest rates and soaring property prices, Australia's property investors could expect the current upswing to culminate into a boom within two years according to a new report.

BIS Shrapnel's Long Term Forecasts, February 2010 Update report author and senior economist, Richard Robinson said that the Australian economy is on the verge of a major cyclical upswing and expects growth to pick up speed over the next two years and build into a boom later this decade.

"Investment, and particularly the construction side of it, is the primary driver of growth in the economy. From 2010, housing construction will take over from waning public spending as the key driver of growth. Initially spurred on by a combination of first home owner/builder grants and low interest rates, this upswing will gather momentum into a boom by 2012. Despite lingering affordability problems, healthy consumer confidence, high rents, a chronic undersupply and rising immigration will continue to boost first home owner, investor and upgrader demand," said Robinson.

Next year, BIS Shrapnel expects the next round of mining projects to get underway, with the rebound in commodity prices and a rosier outlook for the global economy providing the impetus. Plant and equipment investment should also pick up later this year, as businesses, increasingly confident about the outlook and able to access finance, take advantage of the high Australian dollar to buy 'cheap' imported equipment according to the forecaster.

Despite the upbeat outlook, the forecaster warned that problems will occur in three-to-four years' time when all the major construction cycles synchronise and inflationary pressures re-emerge, leading to higher interest rates.

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