Better-than-expected building approvals data shows that the Australian property sector is going to be “red hot” in 2010, economists say.

But the sector will face some downward pressure if the Reserve Bank of Australia (RBA) lifts interest rates for an historic fourth consecutive month in February.

Australian building approvals rose 5.9 per cent to 13,724 units in November, seasonally adjusted, from an upwardly-revised 12,962 units in October, the Australian Bureau of Statistics (ABS) said on Wednesday.

The rise surpassed the median market expectation of a three per cent rise for the month.

“Australia is going to be red hot in 2010,” ICAP economist Adam Carr said.

“I know this is November 2009 data, but we have all the conditions in place to see a very strong housing market - low interest rates, we saw 100,000 jobs created in the last few months, and a housing shortage.”

“Given this is November data, it’s a very good signal.”

Private sector dwellings fell 1.9 per cent in the month to 9,386 while the volatile other dwellings sub-category rose by 27.5 per cent 3,404 units.

JPMorgan economist Helen Kevans said she expected the strong result despite the RBA’s recent rate rises and the scaling-back of the federal government’s first home buyer’s grant.

“The market was expecting a lower number since the RBA started to increase rates, but we thought there would be a lot of pent-up demand for approvals even though the first home buyer’s grant had started to be unwound,” she said.

“We were looking for a big number, and it was slightly stronger than expectations.

However, Ms Kevans said the market would experience some weakness as the RBA moves to lift interest rates above their current 3.75 per cent towards a “neutral” level of 4.5 to 5.0 per cent.

“We’ll see some strength in approvals for the time being, but we’ll have some weakness going into 2010 as the RBA continues to hike rates,” she said.

“We’re still focussed on a February rate hike.”

The central bank took the cash rate 25 basis points higher in October, November and December to its current 3.75 per cent.

The RBA is not scheduled to meet in January, and the board’s next scheduled meeting is on February 2.

Mr Carr said the November building approvals data would add to the case for the RBA to lift rates again in February.

“I think the RBA will be looking at this number and they’ll certainly be looking at the retail sales number tomorrow and inflation numbers on January 27,” he said.

“A February rate hike is still live.”

CommSec chief economist Craig James said the figures had been “very encouraging”.

“We have been waiting for a big lift in terms of apartment approvals,” Mr James said.

“We know that they tend to be fairly lumpy, but it’s encouraging that we’ve got new supply coming on.

“It was a solid increase overall in terms of new dwellings, but particularly in terms of apartments.”

He said the increases would go some of the way to addressing housing shortages and meeting the needs of the growing population.

“It is clear that residential construction is going to be one of the driving sectors of the economy in 2010 and we’ve already had firm evidence of stronger construction over the coming year.”

However, the growth in construction was not something the Reserve Bank of Australia (RBA) needed to fear, he said.

“This is all about adding new supply of homes or dwellings and that’s very much needed.

“If we can get more supply coming on to meet higher demand that should go some of the way in restraining some of the stellar increases that we’ve seen in home prices and would make the Reserve Bank less concerned about the effects driving up retail spending.”

However, he said public sector and private sector construction work would all be moving ahead at the one time.

“It is something the Reserve Bank’s got to keep in check, the amount of activity which is occurring in the broad construction sector.”

Mr James said private sector house approvals for the past three months had been ahead of longer term averages.

“We’re certainly slowly getting there in terms of producing the sort of supply that we need.”

Meanwhile the amount of private sector apartment approvals in the last month is the highest since February, 2008.

“The good news is that we’ve seen an upward trend of approvals over the past year and given the population is continuing to rise, there is an expectation that approvals will rise even further as we go through 2010.”

AAP