Unlike South Australia, which is reeling from BHP Billiton’s decision to mothball its Olympic Dam expansion project, the Northern Territory is enjoying an excellent outlook for property values and construction activity as the state enjoys the fruits of the Ichthys LNG project.
Indeed, survey participants in the latest Property Council of Australia-ANZ Property Industry Confidence Survey are more than five times more confident about the prospects for property and construction in the Northern Territory as they are across the nation as a whole.
Below is an outline of current market conditions and the near-term outlook for the territory in the areas of residential construction, commercial property/non-residential construction, engineering construction and property and construction industry employment.
At the moment, with the Housing Industry Association (HIA) expecting the number of housing starts for 2011/12 to come in at a woeful 1,100 – the second lowest level on record for the past eight years – conditions in the territory’s market for new residential construction are awful.
Going forward, however, amid low levels of supply, a significant recovery is expected to take hold, with the HIA anticipating a surge in the order of 30.1 per cent in the current financial year to take the number of starts up to 1,430 – higher than at any other time for at least eight years. The HIA further expects this to be followed up with a further strong result of 1,380 starts in 2013/14.
Approval data is encouraging. At 536, the total number of dwelling units approved for construction during the three months to June (not seasonally adjusted) was well above the 331 and 414 residential units approved in the June quarters of 2011 and 2010, respectively, meaning that new work is coming in at a brisk pace compared to recent historic results. Recent interest rate cuts should add to momentum in the near term.
As with new housing, current market conditions for renovations of existing homes are also subdued. At $223 million, the HIA’s estimate of renovation investment levels throughout 2011/12 was the third-lowest result recorded in the past eight years. This year, however, the housing group expects investment levels to bounce back to a more respectable $254 million and remain at around that level in 2013/14.
Commercial Property/Non-residential building
Despite a relatively high office vacancy rate (9.1 per cent as of July 31 according to the Property Council of Australia), expectations regarding the near-term outlook for commercial property in the Northern Territory remain high as work associated with a significant number of projects, including the $33 billion Ichthys LNG Project, flows through into stronger economic growth and employment.
Because of this, along with the tight market associated with Darwin’s relatively small size, participants in the Property Council’s confidence survey rank 12-month price expectations as being higher in the territory than anywhere else in Australia with regard to retail, industrial and tourism related property, and second only to WA in commercial office property. Indeed, in retail property, the NT is the only state/territory in the country for which any price growth is expected at all.
The picture is equally promising in terms of non-residential construction. Courtesy of public sector projects such as the Marine Supply Base in Darwin and the Darwin Prison and Doug Owston Correctional Centre, new work is coming in at a brisk pace: at $748.0 million, the overall value of non-residential buildings approved for construction in the first six months of this year was well up on that in the first half of last year ($573.5 million) and the year before ($509.3 million).
Moreover, expectations regarding private sector building are becoming increasingly bullish amid reports of increased financier and investor interest in major projects on the back of Ichthys and other developments.
Indeed, in the Property Council survey, on a scale of negative 100 to positive 100, confidence levels regarding forward work expectations in the territory stood at a whopping 60 – more than twice the average reading for Australia as a whole.
Thanks largely to the resource boom, conditions in the Northern Territory’s civil construction sector are extremely strong.
Already, at $486.7 million and $427.7 million respectively, the seasonally adjusted value of engineering construction work done throughout the NT in the December quarter last year and the March quarter this year was almost double the levels seen in other quarters throughout the past two years.
Going forward, thanks to work on the $33 billion Ichthys LNG Project, industry research firm BIS Shrapnel expects activity to surge to $5.8 billion in 2012/13, up from $1.9 billion in 2011/12 and just under $1 billion in 2010/11, before peaking at $10 billion plus in the two subsequent years.
For now, due to the subdued activity in home building, current conditions in the NT construction industry labour market are not strong.
At 10,800, the ABS estimate of the number of people employed in construction on a full time basis throughout the three months to May was somewhat low compared to recent historic figures, albeit with the territory’s construction industry employment numbers remaining high compared to those recorded immediately following the GFC in 2008 and early 2009.
Going forward, however, this picture will change dramatically as the anticipated recovery in home building takes hold and work on the Ichthys LNG project – which by itself is expected to provide work for 3,000 full time workers at peak production – gets into full swing.
Not surprisingly, then, the market is expected to tighten significantly. Registering just above positive 20 on an index ranging between negative 100 and positive 100, Property Council survey participant expectations regarding staffing levels are around five times as high in the territory as they are for Australia as a whole.