AUSTRALASIA CONSTRUCTION INSIGHT

November 2013

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Willis Construction is pleased to bring to you our Australasia Construction Insight. Given the pace of business today, it is extremely difficult to be across the myriad of items and articles of interest that focus on the Australian and New Zealand building and construction industry. To assist you in this regard, Willis Construction will draw upon our expansive regional network and will combine this information together into one electronic document for distribution to our customer base, on a regular basis. We trust you will find our offering useful. From all of us at Willis Construction, happy reading! Best regards Michael Walshe Practice Leader - Sales Telephone: + 61 3 8681 9707 [email protected]

CONTENTS Industry News Articles – Australia ................................................................................ 1 Construction Beats Crisis .......................................................................................... 1 New Home Building Approvals Increase 10.8 per cent ............................................. 2 NSW Government takes first step to address the insolvency crisis in the construction industry ..................................................................................................................... 2 Construction Key to Productivity Push ...................................................................... 3 State Updates: Construction Industry – Western Australia ........................................... 4 Industry News Articles – New Zealand ......................................................................... 5 Construction sector shake up threat from Govt ......................................................... 5 NZ: Building consents fees up 75% in six years ........................................................ 5 Construction surge shows in statistics ...................................................................... 6

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Industry News Articles – Australia CONSTRUCTION BEATS CRISIS 6 November 2013 Construction is on the cusp of recovery with a strong expansion record for the first time in more than three years in the latest Australian Industry Group and Housing Industry Association Australian Performance of Construction Index. The index jumped 6.8 points to 54.4 in October passing the critical 50 point mark, which indicates expansion. While all construction sectors are back in the black, the positive Australian PCI reading was led by the residential construction sub-sectors, with apartment building recording the strongest growth in October – up 8.5 points to 66.2. Housing also rose strongly by 3.8 points to 65.3 after a solid upturn in the previous month. The new orders sub-index was 3.5 points higher at 54.3 reflecting an improvement in demand across construction in the month. AIG group director, public policy, Peter Burn, said the sharp lift of the Australian PCI last month came after a gradual easing of bad conditions over the past six months. "[It] is a very welcome indication that we could be on the cusp of the long-awaiting recovery in the construction sector," he said. According to him, consolidation over the next few months will show whether a sustained recovery will be built on the combination of renewed confidence and low interest rates during the first half of next year. The residential construction sub-sectors are showing most promise while commercial construction activity lifted from a low base to 52.6 points and remains more fragile. "Engineering construction recorded a welcome return to positive territory despite the cloud hanging over the near to medium-term prospects for this sub-sector as mining-related construction retreats from boom conditions," Burn added. Engineering construction is sitting at 52.7 points. Link: http://www.constructionindustrynews.net/StoryView.asp?StoryID=801819163

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NEW HOME BUILDING APPROVALS INCREASE 10.8 PER CENT 1 November 2013 According to the latest figures from the Australian Bureau of Statistics, approvals for new home construction rose 10.8 per cent across the nation for July, with 14,304 houses, townhomes, and apartments getting the green light. The increase comes as good news for the construction industry, and exceeds the increase of 4.0 per cent for approvals earlier predicted by economists. Factors credited for the growth include lowered interest rates, more stable employment, and stronger population growth. While the new home market remains volatile, the figures are encouraging and point toward a recovery in Australia's home construction industry. Link: http://www.constructioninfocus.com.au/mag/CIFAUOct2013/#?page=10

NSW GOVERNMENT TAKES FIRST STEP TO ADDRESS THE INSOLVENCY CRISIS IN THE CONSTRUCTION INDUSTRY 30 October 2013 The spate of insolvencies in the New South Wales (NSW) construction sector shows no signs of easing. On 24 October 2013, the Building and Construction Industry Security of Payment Act Amendment Bill 2013 was introduced into Parliament. The Bill is part of the government's broader reform package to address the level of insolvency being experienced in the NSW construction sector. The Bill will introduce important changes to the Building and Construction Industry Security of Payment Act 1999 for most industry participants, except for the domestic residential building sector. The Bill's amendments will apply to construction contracts entered after the amendments come into force. They adopt various recommendations with a focus on greater protection for subcontractors. Link:http://www.mondaq.com/australia/x/271876/Building+Construction/NSW+government+takes+first+step+to+address+the +insolvency+crisis+in+the+construction+industry

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CONSTRUCTION KEY TO PRODUCTIVITY PUSH 16 October 2013 Australia would benefit to the tune of $1.252 billion if the Construction sector improved its productivity by just one per cent, according to a new PricewaterhouseCoopers report. In the report "Reconstructing productivity," PwC said while the construction sector made a significant contribution to the national economy - $99.5 billion in gross value add in fiscal 2012 – the sector is a serial productivity underperformer. Economist and PwC partner Jeremy Thorpe said the benefits of a pick-up in productivity in the construction sector would be widespread. "Australia's economy stands to benefit by $1.25 billion from even the smallest productivity improvement in the construction industry", he said. "Improved productivity would drive lower costs and mean savings for both the private sector and government. New home buyers and consumers at large would also benefit with lower construction costs pushing up real wages." However, Mr. Thorpe noted the construction industry does not have a strong history of improving productivity. "There are four key areas that unions, government, construction companies and the sector can address to improve productivity; technology, skills, red tape and industrial relations," he said. Link: http://www.allnewsau.com/news/construction-key-to-productivity-push-

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State Updates: Construction Industry Western Australia Building and construction demand in Western Australia remains optimistic, with all sectors set to enjoy positive growth, say industry forecasts by Australian Construction Industry Forum (ACIF). The flow of demand across all sectors continues in this state, driven by a resources construction boom now passing its peak. Increased industry and population required a built environment to work rest and play al of which needs to be designed, built and maintained by our industry. Businesses in this state are enjoying growth in demand the envy of all other states, however decision makers need to use good quality information to determine how to most effectively use their staff and resources," said Executive Director of ACIF, Peter Barda. The chart below show the relatively strong outlook for the Western Australia engineering construction sector. Link: http://www.acif.com.au/acif-news/positive-prospects-for-western-australian-building

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Industry News Articles – New Zealand CONSTRUCTION SECTOR SHAKE UP THREAT FROM GOVT 6 November 2013 Housing Minister Nick Smith and Commerce Minister Craig Foss are seeking submissions on an options paper which aims to cut building material costs, which are 30% higher than Australia. The options put forward to improve the regulatory framework included greater specification of lower-level product, encourage more transparency from certification providers, prevent designers from preventing the use of substitute products, and lift the use of risk-based consenting. Risk based consenting regime:

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Reduces the consenting requirements and costs for lower risk residential and commercial buildings. Would require fewer or even no inspections during construction for low risk projects. Higher risk construction projects would still be subject to the existing consenting regime requirements.

The steps are part of the broader response to making housing more affordable, which has been hindered by a lack of supply in the country's two biggest cities, Auckland and Christchurch, and comes amid an 'all of government' procurement for building materials as it seeks to cut its annual spend over the coming years. Link: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11152327

NZ: BUILDING CONSENTS FEES UP 75% IN SIX YEARS 5 November 2013 A 2013 update of a 2008 report by Branz1, shows a 25% increase in land development costs – covering infrastructure, professional and council fees and a 75% increase in building consent fees over the last six years. While lower interest rates had offset these changes and improved housing affordability in most parts of the country. Of that, 12% came from higher material costs, there was a 12.5% increase in labour costs, and that profit margins had fallen by 2% in an industry characterised by small construction firms building mainly one-off houses, with both these factors adding to the relatively high cost of building a house in New Zealand. Link: http://sourceable.net/nzbuilding-consents-fees-75-six-years/

1

An independent research organisation serving the building industry.

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CONSTRUCTION SURGE SHOWS IN STATISTICS 31 October 2013 Findings of business demography data released by Statistics New Zealand indicated:

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The Canterbury region had 4,700 more construction workers in February 2013 than February 2012. It had about 660 more construction industry business units, 9.7% growth in the year. Canterbury region had 900 more employees in February 2013 than February 2012, while the retail trade has grown by 600 employees. In rental, hiring and real estate services, the number of business units increased by 440, or 3.6%. Canterbury had 64,850 business units in February this year, 1.2% more than in February 2012. The figures show New Zealand had 472,600 businesses in February 2013, down 0.2% from 2012.

Link: http://www.stuff.co.nz/business/industries/9344551/Construction-surge-shows-in-statistics

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ABOUT WILLIS Willis Group Holdings plc. is a leading global risk advisor, insurance and reinsurance broker. With roots dating back to 1828, Willis operates today on every continent with more than 17,000 employees in over 400 offices. Willis Australasia currently employs approximately 480 Associates, with nine offices throughout Australia and New Zealand, and has operated in the region for 55 years. Willis offers its clients superior expertise, teamwork, innovation and market-leading products and professional services in risk management and transfer. Our experts rank among the world’s leading authorities on analytics, modelling and mitigation strategies at the intersection of global commerce and extreme events. Find more information at our website, www.willis.com, our leadership journal Resilience, or our up-to-the-minute blog on breaking news, WillisWire. Across geographies, industries and specialisms, Willis provides its local and multinational clients with resilience for a risky world.

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