Sydney to lead building recovery in 2009/10

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The long awaited building boom in Australia appears to be finally on its way with Sydney expected to lead the upturn according to BIS Shrapnel.

In its latest report, BIS Shrapnel is forecasting a sharp increase of 21% in housing starts to 160,000 over 2009/10 period. "This will be the beginning of a four-year upturn for the sector," said Jason Anderson, senior economist, BIS Shrapnel.

Housing starts in NSW is set to soar by 48% over 2009/10 after dropping by 27% during the previous year. NSW is expected to come out of the doldrums faster than any other state according to Anderson. He noted that housing starts fell to 23,000 during 2008/09 - the lowest in more than 50 years. "The rebound in Sydney house building is critical to the national economic recovery," he said.

Queensland is also expected to see a strong growth in housing construction with building starts forecast to climb by 24%. A solid rebound in dwelling construction is also expected in WA with housing starts growing by 20%.
 
Anderson said the upswing will be largely underpinned by continuation of very low interest rate.
"We are forecasting interest rates to kept low until the expansion in housing construction is great enough to offset the deep plunge in business investment, which is only just beginning to become evident," he said.

To compensate for the plunge in business investment, Anderson said the country will depend on a strong and sustained recovery in residential building activity throughout 2009/10 and 2010/11.

"To stimulate housing demand from upgraders and investors, low interest rates will need to persist for an extended period," he said.

If this is the case, Anderson said a further 9% rise in building starts to 174,500 is expected.

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