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Aussie home-building approvals rise sharply

Unexpected increase attributed to rising employment, wages and immigration

(SYDNEY) Australia’s home-building approvals unexpectedly increased to a five-month high in July as rising employment, wages and immigration encouraged investment in property.

The number of approvals to build or renovate houses and apartments advanced 0.4 per cent from June to 12,980 the Bureau of Statistics said yesterday in Sydney.

The median estimate of 24 economists surveyed by Bloomberg News was for a 2 per cent drop.

Australia’s lowest jobless rate in 33 years and near-record consumer confidence is boosting an economy in its 16th year of expansion.

Property investors are returning to the market as rents increase after a construction slowdown last year cut the supply of housing just as rising immigration boosted demand.

‘The signs are there for a lift in construction activity in the next 12 months,’ said Michael Blythe, chief economist at Commonwealth Bank of Australia, the nation’s largest mortgage lender.

‘We will see that at some point, with vacancy rates low and rents high,’ he added.

The Australian dollar advanced to 82.26 US cents at 4.46pm in Sydney from 82.07 cents immediately before the report was released.

The yield on the benchmark 10-year government bond was unchanged at 5.94 per cent. The S&P/ASX 200 Index rose 0.3 per cent.

Building approvals surged a revised 6.9 per cent in June. Approvals were 7.5 per cent lower in July than a year earlier, yesterday’s report said.

Australia’s jobless rate has fallen to 4.3 per cent, the lowest since 1974, after employers hired 250,000 extra workers in the 12 months ended July 31.

The wage-price index gained 1.1 per cent in the second quarter, equalling the strongest increase since the series began in 1997.

‘There are several good reasons to expect residential construction will increase over the coming year,’ said John Edwards, chief economist at HSBC Bank Australia Ltd in Sydney.

‘Immigration is high; there have been substantial gains in employment and incomes,’ he added.

More than 3,450 people arrived in Australia every week in the year ended June 30, 2006, the Immigration Department reported last year.

In the subsequent six months to Dec 31, more than half the immigrants who arrived were either professionals or tradespeople, the department said in April.

Also encouraging property construction, rental vacancy rates have fallen to decade lows, and are less than 2 per cent in Australia’s six largest cities, according to the Real Estate Institute.

That has driven up rents by an average 10 per cent for a two-bedroom apartment, the institute said.

‘We’re really at the bottom of the Australian housing cycle,’ Rod Pearse, chief executive officer of Boral Ltd, said on Aug 15. ‘We’re in good position for when this market comes back.’

Boral, Australia’s biggest seller of building materials, posted a 21 per cent drop in second-half profit on waning demand for new homes and reduced sales in the United States.

Demand plunged in New South Wales, Australia’s most populous state.

‘New South Wales has been at the bottom of the league table,’ Mr Pearse said. ‘There will be a strong recovery in the next five years.’

Still, higher borrowing costs may stifle housing demand.

The Reserve Bank of Australia raised the overnight cash rate target a quarter percentage point to 6.5 per cent, the highest in almost 11 years, on Aug 8.

That followed increases in February, August and November 2006.

The four rate adjustments have added about A$160 (S$200) a month to repayments on the average home mortgage of A$250,000, according to the Housing Industry Association.

About 23 per cent of homeowners have had to cut spending to pay their mortgages, according to a survey of 2,500 consumers conducted in March by JPMorgan Chase & Co.

Home-building contributed just 0.1 percentage point to the first quarter’s economic growth rate of 1.6 per cent from the previous three months.

Australia’s economic expansion probably slowed to 0.6 per cent in the second quarter as residential construction declined and exports eased, according to a Bloomberg News survey of economists.

The growth report will be released today.

Approvals to build private houses rose 0.7 per cent to 8,646 in July. Approvals for apartments or renovations dropped 6.5 per cent to 3,726.


Source: Bloomberg (Business Times 4 Sept 07)

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