According to BIS Shrapnel’s March 2016 Building Industry Prospects report, it is expected that residential building activity will peak during this financial year, based off new approval figures and other “leading” market indicators.
“The growth of the Australian residential building market has been unprecedented, driven primarily by low interest rates and a dominate investor presence,” the report stated.
“Residential building activity has broken records but this impressive performance cannot last.”
Cash rates remaining at record lows has sustained the latest property boom, BIS Shrapnel noted, taking residential building activity to a record high in the year to September 2015 of 215,053 commencements.
“The current building boom is in a mature phase. Whilst interest rates are not expected to change in the next two years there is little scope for the current low rates to further boost housing demand since home prices are at breaking point. This boom is characterised by price rises which helped to attract investors,” the report stated.
While stock deficiencies remain across the major centres of Sydney, south-east Queensland and Western Australia, BIS Shrapnel believes most other cities will reach an oversupply in stock and the market will attempt to correct itself.
“By the end of 2016 the peak of Australia’s building cycle will be reached, with some states already showing signs,” the report stated.
“With the RBA expected to hold interest rates at or below two per cent over the forecast period, the housing market will eventually lose steam. We are forecasting slight growth in 2015-16 of two per cent to take national dwelling commencements to a new all-time peak of 218,800," BIS Shrapnel also said.
“From this great height we expect activity to fall by 14 per cent to 187,150 new dwelling starts in 2016-17, falling almost as fast at the cycle rose.”