Building approvals climb again, helped by rates

New Zealand home building approvals rose for a second month, spurred by consents for apartments, stoking optimism the central bank's policy of record-low interest rates and a pick-up in net migration is reviving demand in the property market.

Monday, June 29th 2009, 12:45PM

by The Landlord

Building permits rose 3.5%, seasonally adjusted, in May after gaining 12% in April, according to Statistics New Zealand. Excluding apartments, consents fell 3.1%.

Much of the increase reflected permits for units in retirement villages, which are classified by the government statistician as residential apartments.

Investors are looking for signs of a revival in the property market after the central bank kept the official cash rate at a record low 2.5% this month and said rates will stay low until the second half of 2010.

Figures last week showed net migration rose to its highest in almost six years in May, with a seasonally adjusted net 2,690 arrivals, the most since July 2003. Robust inbound migration helped fuel the nation's property boom over the past decade and fanned consumer spending as new arrivals sought homes and the appliances and furniture to fill them.

"House sales have bounced off their lows, and net migration has turned sharply positive," said Bernard Doyle, New Zealand strategist at Goldman Sachs JBWere. "Today's data hints at recovery feeding through to residential activity, but we cannot be confident of this until single family dwelling activity begins to lift," he said.

The NZSE Building Materials & Construction Index, whose members are Nuplex Industries, Steel & Tube Holdings and Fletcher Building, edged up 1% today as Nuplex rose. The index has fallen 13% this year, better than the NZX 50 Index's 16% decline.

Reserve Bank Governor Alan Bollard this month warned the economy faces risks if signs of stabilisation in the housing market are taken as a sign of another boom, spurring another cycle of "borrow and spend up large." The economy shrank a greater-than-expected 1% in the first quarter and the fourth-quarter contraction was revised to the same size, signaling the recession deepened through 2008-early 2009.

Consents were issued for 1,238 new dwellings last month, including 963 houses and 275 apartments, for a total value of $408 million. That's down 26% from May 2008. The value of non-residential building consents rose 35% from a year earlier to $479 million, boosted by approvals for sports stadiums.

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