An apartment construction boom chaser

By Callam Pickering

Building approvals are holding up a little better than expected — and have rebounded somewhat over the past three months — and that provides tentative evidence that the residential construction boom may be more persistent than initially believed.

Recently, the RBA offered a damning assessment of the resource sector, noting that “at current prices, there is a sizable amount of coal and iron ore production that is unprofitable”; furthermore, “the outlook for prices will depend on what proportion of these mines is shut down” (Prepare for more Australian miners to crumble; August 11).

The outlook for exports remains strong and should recover somewhat but there’s little reason to believe that iron ore prices and commodity prices more generally will improve materially and that clearly poses a considerable risk to Australia’s mining sector.

Residential construction picked up further in the June quarter and building approvals may have received a second wind.

To a large degree though, the decline in net exports in the June quarter and the downward revision for the March quarter will be offset by greater inventory accumulation.

Approvals for apartments also provide a good indicator of investor activity — on those occasions when investors purchase new rather than existing properties — so the recent uptick over the past three months may indicate that investor loan approvals will not deteriorate as quickly as I initially believed.

According to the ABS, net exports will subtract about 0. 9 percentage points from real GDP in the June quarter (released tomorrow).

Overall the data out today was relatively mixed but with the poor exports data largely expected and the solid approvals data unexpected, the market should view these developments positively.

Read more here: Business Spectator


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