Property and construction consultants Davis Langdon have predicted that the housing construction market will be the first sector to show signs of an economic recovery, but this is not likely to happen until at least late 2009.

Davis Langdon’s latest Leading Indicators research predicts that general economic conditions restricting the start of new development work will continue to impact on the residential sector for most of this year, despite several consecutive interest rate cuts.

National research manager Rachel Kelloway said the proactive effort by Australia’s Reserve Bank to bring interest rates to their lowest level for seven years had, so far, managed to allay a recession by alleviating overburdened households.

“However, despite low interest rates, record low vacancy rates and a widespread housing shortfall we do not expect to see residential construction pick up until towards the end of 2009, when sentiment begins to recover,” said Ms Kelloway.

“Having said this, however, we do anticipate that the residential sector is likely to be the first to regain a pulse.”

The Leading Indicators research suggests that investor sentiment is expected to remain subdued for at least the first half of 2009.

Banks will remain cautious, requiring greater hurdle rates before committing to new projects - all of which will combine to discourage developers in the short term.

Tender price escalation has reached a plateau in most areas of Australia, with some cities moving into deceleration as contractors scramble to secure what little work remains available in order to maintain their pipeline of forward workload.

This situation is expected to continue throughout 2009.

Construction of new residential stock in Sydney remains at record lows, Brisbane has been hit hard by the economic downturn and falling interest rates have failed to boost confidence in Adelaide.

Although residential construction is generally subdued due to current economic conditions, there are areas of the country which are more active than others.

The overall market in Darwin is still pushing ahead despite gloom and doom from southern states, with several large projects still continuing  through early planning and documentation phase. Tender price increases in the vicinity of 6% to 7% are still anticipated across the 2009.

In Perth a few notable large scale residential projects are still going ahead, although developments now require substantially more pre-sales to get off the ground (60% to 70% instead of 20% to 30%) and investors are increasingly cautious.

Melbourne’s residential apartment market remains active, with a number of projects under construction and near completion.

However Ms Kelloway said that while there were plenty of new projects on the drawing board, it remained to be seen whether these make it into construction.

“The fallout of the global financial crisis continues to keep cash scarce and financiers cautious,” she said.

“There are concerns that projects nearing completion may face difficulties as some investors try to escape from contracts entered into when finance was easier.”

For further information, contact Meaghan Jones on +61 3 9933 8800 or email mjones2@davislangdon.com.au