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Positive outlook for construction in Australia despite commodities “hangover”

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Written by Stefan Kostarelis

Turner & Townsend has assessed Australia’s outlook as positive in a report based on its International Construction Market Survey 2017.

But there are a few caveats, namely the aftereffects of the drop in the commodities market, and higher construction and borrowing costs.

The construction and project management consultancy sees NSW and Victoria as economically “powering ahead” with high levels of public sector infrastructure investment in roads and rail.

Meanwhile, the report asserts that the resource-dependent states of Northern Territory, Queensland, South Australia and West Australia are slowly emerging from the “hangover” of the commodities market.

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Examining construction markets and trends, the report describes residential apartment building programmes in Brisbane, Melbourne and Sydney as “surging”, fueled by low interest rates and strong demand from Chinese investors.

The report noted that while there are fears that Brisbane and Melbourne are reaching the end of their “apartment cycle” and that commercial construction is “less buoyant”, this is being offset by growth in the financial and tourism sectors.

According to the report, Sydney has become one of the most expensive places in the world to build as the city’s construction boom leads to increased demand for building materials and tradesman.

The harbour city is ranked the ninth most expensive city in the world in which to build and is the only Australian city to make the top ten.

Survey data was collected from a total of 43 cities from seven global regions (Africa, Asia, Australia, Europe, the Middle East, North America and South America).

In advanced economies, 20 of the 25 markets saw year on year construction costs rise more than general inflation except for Perth, which was the only market to see negative growth.

In Perth, construction costs fell by 2% for 2017 following a period of significant increase during the resource-backed construction boom of 2010-2015.

New York overtook Zurich to become the most expensive city in which to build, with an average cost of $USD 3,806.92 per sq metre. San Francisco, Zurich, Hong Kong and London round out the top five.

The cost to build per square metre for the Australian cities surveyed is Sydney, $USD 2,563.73, Melbourne $USD 2,218.14, Perth, $USD 2,203.43 and Brisbane $USD 2,172.79.

A major contributing factor to construction costs is labour wages, and North America tops the list with an average hourly wage of $USD 72.50 per hour. Australia is listed in second place, with an average hourly wage of $USD 56.20. Looking at cities, Zurich remains the city with the highest labour costs, with an average hourly wage of $USD 98.50 per hour.

The report concludes that although much of the world is facing political uncertainty, the global economy is expected to grow this year, heating up markets and increasing construction costs.

Using expected inflation as a measure, the top five cities for increased construction costs in 2017 are Buenos Aires (20%), Istanbul (10%), Dublin (8%), Johannesburg (7.5%) and São Paulo (6%). Meanwhile, the lowest five are Perth (0%), Singapore (0%), Muscat (0%), Paris (0.5%) and Madrid (0.5%).

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