An impressive rise in building approvals in May should be taken with a grain of salt, economists say.
But the approvals increase has provided fuel for the central bank’s decision on Tuesday to keep the cash rate on hold.
Australian residential building approvals rose 27.3 per cent in May, seasonally adjusted, data released on Tuesday showed.
According to the Australian Bureau of Statistics figures, a 58.7 per cent jump in `private sector dwellings excluding houses’, which includes multi-story units and townhouses, was the major reason for the rise.
However, Commsec economist Savanth Sebastian says the data series was notoriously volatile and the figures were coming from a low base following several tough years.
“Anecdotally we are seeing signs that the housing sector is seeing a pick-up in activity, but it is off a very low base and you couldn’t claim that there has been a full-blown turnaround in a sector,” he said.
However, he said the result was welcome news for the sector.
“Its the best result we’ve had in terms of unit dwellings that we’ve had in about one-and-a-half years,” he said.
“There are signs that perhaps developers are getting better access to funding and are looking at the market and seeing cheaper interest rates.”
JP Morgan economist Ben Jarman said the increase in the apartment sub-sector reflected a number of projects starting up in May.
“The ABS has commented that there are some individual large projects that came through in Victoria and New South Wales in particular,” he said.
“When that happens, you only need a few projects with a couple of hundred apartments, and it gives you quite a strong result for the month.”
Mr Jarman said that since timing seemed to play a role in this month’s jump, there could be a weaker reading in June.
“We know of some administrative issues that caused the weakness last month, particularly in Western Australia,” he said.
“There was a change in legislation that made a whole bunch of approvals redundant or pared back – so when those do get adjusted, you’ll see a jump back.
The approvals increase made a strong case for the Reserve Bank of Australia to keep the cash rate on hold when it met on Tuesday, Mr Jarman said.
The central bank on Tuesday afternoon kept the official interest rate at 3.5 per cent.
