Brisbane Flooding May Trigger a `Big Spike’ in Home Sales, Economists Say

Brisbane may have increased home sales and construction this year once the cleanup of Australia’s third-biggest city begins after the worst floods since 1974, economists at Citigroup Inc. and JPMorgan Chase & Co. said.

“We could see an increase in activity, once the total damage assessment is made,” Josh Williamson, senior economist at Citigroup in Sydney, said in a telephone interview yesterday. “There could be a big spike in housing market activity.”

Auction clearance rates in Brisbane dropped to 22 percent in the week ended Dec. 19, the lowest among major Australian capital cities, compared with 48 percent a year ago, according to figures from real estate researcher RP Data. Brisbane home prices fell a seasonally adjusted 1 percent in the three months to November, compared with a 1.2 percent increase in Melbourne and 0.3 percent growth in Sydney, RP Data figures show.

Muddy water inundated about 12,000 homes and 2,500 businesses, smashed roads and shuttered the city center. Residents of Brisbane’s most expensive suburbs, including Newstead and Hamilton, who pay median prices of more than A$1 million ($995,000) for waterfront properties on the Brisbane River’s banks, are among those affected.

“Socially, it’s terrible to have things destroyed,” Ben Jarman, a Sydney-based economist at JPMorgan, said by phone yesterday. “But if you have to replace them, that looks good in growth numbers.”

More information about the extent of the damage is needed to gauge the long-term impact on prices, said Williamson and Jarman. By this time next year, Brisbane property price growth could be in line with the rest of the country, Jarman said.

Property sales will slow significantly over the next month as residents focus on assessing damage and put purchase decisions on hold, said Rod Cornish, Sydney-based head of property research at Macquarie Group Ltd. Buyers are also likely to turn more selective about where they buy properties, avoiding low-lying areas that have been particularly hard hit, he said.

Construction activity appears to have slowed in December in Queensland as a result of the wet weather, said Harley Dale, chief economist at developers’ industry group Housing Industry Association. Still, the damage caused by the flood is likely to spur development later in the year, he said.

“There’s likely to be a considerable short-term negative impact that will weigh heavily in the March 2011 quarter,” Dale said. “But the net outcome over the entire 2011 calendar year may turn out to be a higher level of new home building as a result of the need to rebuild homes and engage in quite considerable improvement and renovation.”

Date: 13 January 2011 | For the full report, please visit http://www.bloomberg.com