Queensland's residential construction sector will remain sluggish this year but signs are pointing to a recovery by 2021, according to the latest market outlook by Master Builders Queensland (MBQLD).

MBQLD expects 31,000 dwelling commencements in 2020, down 6% from the anticipated total of 33,000 dwellings for 2019.

"This is because despite record-low interest rates, loans to owner-occupiers to build a new home and first-home buyers are both down significantly," said Master Builders deputy CEO Paul Bidwell.

Figures from the Australian Bureau of Statistics show that loans issued for new homes remained lacklustre, dropping in November by 8.4%, hitting their lowest level since 2012.

However, recovery is expected early into next year and is likely to continue by 2022.

"We're forecasting 35,000 commencements in 2021, increasing to 40,000 by 2022. Over this time, we expect alterations and additions to continue their strong trajectory," Bidwell said.

Bidwell said this rosy outlook depends on the performance of the Queensland economy, which is poised to grow at a healthy 2.5%. While consumer spending continues to be weak, improvements in business investment, jobs growth, and population will support the state in achieving its economic target this year.

The pipeline of building work across regions in Queensland varies. For instance, while Greater Brisbane will continue to attract more jobs, demand is expected to be held back by a lack of investment in both residential and non-residential construction.

On the other hand, confidence is growing in the Gold Coast despite the region losing 18,000 jobs over the past year.

There are regulatory policies, however, that could influence the construction industry this year, including the changes to the ,minimum financial requirements (MFR) imposed on builders.

"The revamped MFR are causing grief for tens of thousands of licensees. It remains to be seen whether these businesses can comply with the new laws by the end of 2020 and what action the building regulator takes against those who can't," Bidwell said.

Another challenge is the next phase of the controversial Building Industry Fairness policy that will be announced in the middle of the year.

"While there are some positive changes, by and large, it will be to the cost and detriment of many builders and trade contractors. All in all, it's set to be a tough year for the industry," Bidwell said.