Hopes building of turnaround

BY GREG NINNESS

An upturn in section sales over the past few months has added to hopes that the residential property slump is bottoming out.

According to Real Estate Institute figures, sales of sections hit a low point last November when just 231 were sold by REINZ members.

Since then sales have steadily increased and, last month, 479 sections were sold.

While that is a positive sign, there are mixed signals about whether this means the start of an upturn in building activity.

Section prices have dropped back by about 15% since the median hit $200,000 in May last year, and over the past few months the median has been up and down within a narrow band between $170,000 and $180,000 (refer table, right).

And the upturn in section sales has not yet resulted in any improvement in the number of residential building consents being issued.

According to Statistics NZ, residential dwelling consents (excluding apartments) issued in the first four months of this year have been running at about half that of the same period last year, when the market was already depressed.

One of the reasons new dwelling consents are still in the doldrums is that there is a time lag between people buying a section and completing the arrangements to have a new house built on it.

So it could take several months for the upturn in section sales to start to flow into the consent numbers and then into construction activity. But there are some hopeful signs that this will be the case in the next few months.

David Halsey, general manager of Fletcher Building subsidiary Fletcher Residential, one of the country's largest new-home building companies, said business was "extremely buoyant".

Fletcher's business model is what is often referred to as spec building. It develops its own subdivisions and builds homes on them which it sells once they are completed, rather than building houses to order on buyers' own sections. Its homes are mostly priced between $600,000 and $900,000.

Halsey said the company was affected by general movements in the housing market, because many of its customers needed to sell an existing home before they could complete the purchase of a new one.

Over the past year, the company had received plenty of interest from potential customers. But many either had difficulty selling their existing home, or were unwilling to put them on the market while the sales outlook was so uncertain.

But when the general residential property market picked up in the first few months of this year, there was a rush of new customers who were able to complete deals because they had sold their existing homes.

"Our market was slow after the election, and then you had Christmas, which is always slow. But since February it's been buoyant," Halsey said.

Warwick Quinn, the chief executive of the Registered Master Builders Federation, is also hopeful of an upturn in activity.

He said that although the number of new homes being built had plunged, some parts of the market had held up quite well.

"It's new housing starts that have really plummeted significantly. In 2003/04, there were about 35,000 new dwellings started [a year], including apartments. But it's now down to about 12,000 to 14,000.

"But what we've found in the last two to three months is that non- residential [building activity] has been not bad."

Quinn said the fall-off in private sector commercial building activity, with fewer shops, offices and hotels being built, had largely been offset by government-funded infrastructure building work.

"And that activity is still really quite good," he said.

Home improvement and alteration work had also held up reasonably well, with many people who would have traded up to a bigger or better house in good times, deciding to stay put and upgrade their existing one.

Statistics NZ figures showed the number of building consents issued for dwelling alterations and additions (which require structural alterations to a dwelling) had been remarkably stable at just over 1000 a year for the past four years.

Although that's low compared to the nearly 15,000 new dwelling consents issued for the year to April, the importance of the home improvement market in sustaining the building industry in tough times could be seen in figures compiled by the What's On report.

What's On analyses every building consent issued each month and is regarded by many building industry players as the leading source of information about activity levels and trends in the industry.

What's On managing director Tony Graham said that in the year to April, 2376 new-dwelling consents were issued in the Auckland region, the country's largest housing market, while more than twice as many, 5515, were issued for alterations and additions.

However, the alterations and additions were even more important to the trade than those numbers suggested, because alteration work tended to punch above its weight in terms of the value, he said.

According to Graham, the final cost of a building job was usually much higher than the estimate given when the consent was applied for.

This was because the consent value usually excluded fixtures and fittings, and many jobs proved more difficult than anticipated, or the client decided to change the job in some way once work was under way.

The estimated value of new dwellings built in the Auckland region in the year to April was probably closer to $1 billion, instead of the $830m estimate in the consent figures.

The value of alteration work was probably between $767m and $1.15b, compared to the consent estimates of $383m.

So it was likely that the building industry was earning as much from additions and alterations work at the moment, as it was from building new homes.

- © Fairfax NZ News