Investors looking for Australia’s next hotspots should be eyeing the major investments headed to Queensland and Western Australia.
According to BIS Oxford Economics’ Building in Australia 2019-2034 report, new building projects will take a deep dive before a strong recovery in 2020-21.
Across Australia, there was about a 12 per cent drop in 2018-19 – worth approximately $109.8 billion – down from a peak in the financial year prior.
“FY2019-20 should represent the trough for total building, with a strong rebound anticipated from 2020-21 onwards as interest rate cuts, easing mortgage serviceability tests and first home buyer stimulus help facilitate a broad recovery,” Robert Mellor, managing director at BIS Oxford Economics, said at the release of the report.
“Total building activity is anticipated to climb near its previous peak over the coming five years,” he added.
“Strong population growth, a rising national dwelling stock deficiency and housing stimulus are set to provide considerable support to the residential building and renovation sectors, while non-residential building is projected to remain elevated at a high base over the medium term,” he said.
Conditions in Queensland and Western Australia
For popular investment hotspots, like Western Australia and Queensland, Mr Mellor added that he expects the next upturn in new builds to be spurred by non-residential investment.
“The next pick-up in new dwelling construction is expected to coincide with a continued buoyant level of non-residential investment and a turn in mining investment,” Mr Mellor said.
“Queensland and Western Australia are well positioned to lead the next residential upturn, ahead of New South Wales and Victoria.”
First home buyers and upgraders will likely spark the recovery in commencements, according to the report, with investors following vacancy rates and rental yields become more appealing.
However, there are some variables that could impact these outcomes. For example, if investors don’t return to the market, it’ll be tough to sustain momentum for a recovery in commencements.
“We could experience a deeper downturn before then, and a delayed recovery, if fundamental drivers of residential activity were to ease more than expected,” he added.
“A crisis of confidence surrounding build quality in the apartment market has the potential to weigh further on apartment construction over the short term, adding downside risk to the outlook.”