VZCZCXRO4367
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHBN #0136/01 3240513
ZNR UUUUU ZZH
R 190513Z NOV 08
FM AMCONSUL MELBOURNE
TO RUEHC/SECSTATE WASHDC 4818
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHZU/APEC COLLECTIVE
RUEHPT/AMCONSUL PERTH 1478

UNCLAS SECTION 01 OF 02 MELBOURNE 000136 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EIND ECON ETRD AS
SUBJECT: Global Financial Crisis Claims Next Victim in Victoria 
 
REF: Melbourne 125, Melbourne 123 
 
MELBOURNE 00000136  001.2 OF 002 
 
 
Summary 
------- 
 
¶1. (SBU) The global financial crisis has found its latest victim in 
Victoria's building sector.  A dearth of financing and sagging 
consumer confidence have put the brakes abruptly on Victoria's ten 
year construction boom.  While the Rudd government will soon 
announce an AU $300 million (US $194 million) stimulus program aimed 
at injecting money into local infrastructure projects, some 
observers worry that assistance may not help the troubled building 
industry.  With its auto industry on the rocks and building coming 
to a halt, the global financial crisis is continuing to hit home in 
Victoria.  End Summary. 
 
Global Financial Crisis Hits Melbourne Builders 
--------------------------------------------- -- 
 
¶2. (SBU) Melbourne's previously booming building sector is coming to 
a halt.  Asher Judah, Manager for Policy at the Master Builders 
Association Victoria (MBAV) confirmed that AU $1 billion (US $645 
million) of business and approximately 300 jobs have already been 
lost due to scarce financing available for ongoing and new projects. 
 The global credit crunch and the resulting loss of confidence, 
Judah said, have led large and small builders alike to cut costs and 
scale back both ongoing and planned projects.  According to the 
MBAV, all of Australia's states, with the exception of South 
Australia and Western Australia, have experienced a drop in 
residential housing starts.  (Note: The MBAV advocates for more than 
7,000 residential and commercial building companies as well as 
subcontractors and material suppliers.  They have branches in each 
of Australia's six states.  End note.) 
 
¶3. (SBU) Judah confirmed media reports stating that several large 
builders such as Multiplex and Mirvac have laid off hundreds of 
staff and have scaled back or reconsidered ongoing projects. 
Mirvac's AU $1 billion (US $645 million) fruit and vegetable market 
in Melbourne's Epping suburb is reportedly on the brink of collapse 
due to funding problems.  More than AU $5 billion (US $3.23 billion) 
of other major building projects face delays or substantially 
reduced outlays.  According to Judah, builders are considering 
converting commercial buildings into residential complexes where 
they believe demand is still strong.  Adding to builders' financing 
woes, potential tenants have backed down citing "unfavorable" 
economic conditions, leading some contractors to delay or 
indefinitely postpone projects. 
 
The Worst is Yet to Come 
------------------------ 
 
¶4. (SBU) James Hodges and Sam Steele at Victoria's Department of 
Innovation, Industry and Regional Development (DIIRD) echoed these 
sentiments and noted that the construction pipeline is "drying up." 
While Hodges emphasized that Melbourne's construction companies have 
not "overbuilt," he conceded that the problems visible today are 
just the tip of the iceberg.  Long lead times and lengthy approval 
procedures mean that the losses experienced by the building sector 
today will hit home over the next 18 months.  MBAV's Asher Judah 
predicts that losses in the commercial construction sector will 
begin to truly manifest in the first two quarters of 2009.  If, as 
Judah fears, larger contractors fold in a stagnant building market, 
smaller sub-contracting companies risk being pulled down with them. 
 
¶5. (SBU) According to Judah, residential developers are more 
optimistic.  Approximately 50-70 percent of MBAV's residential 
builders say that business is "good."  Some companies have 
attributed this temporary confidence to the Rudd government's 
October 14 plan to inject AU $10.4 billion (US $6.71 billion) into 
the Australian economy by granting assistance to retirees, families, 
and temporarily tripling government aid for first-home buyers from 
AU $7,000 to AU $21,000.  Larger Australian banks have begun to cut 
commissions, "wiping out" some of the smaller mortgage lenders. 
With finance drying up, even residential builders catering to 
Victoria's rapidly growing population are beginning to worry. 
 
Build Australia? 
---------------- 
 
¶6. (SBU) The Rudd government is preparing to announce an AU $300 
million (US $194 million) infrastructure initiative aimed at funding 
city-level projects such as building community halls, parks and 
revamping schools.  Asked whether this initiative would be able to 
bolster Victoria's flagging construction sector, MBAV's Asher Judah 
said that the money would only help if it flows to projects already 
approved and ready to break ground immediately.  The president of 
the Local Government Association, Paul Bell stated publicly on 
November 18 that local governments nationally had over AU $1 billion 
worth of infrastructure projects "ready to go" as soon as funding is 
 
MELBOURNE 00000136  002.2 OF 002 
 
 
made available. 
 
Comment 
------- 
 
¶7. (SBU) With substantial banking industry layoffs feared to be 
imminent (the announcement of Citi shedding 14 percent of its 
workforce globally has sparked fears that Australia's banks may be 
next) and the credit crunch exacerbating the auto industry's 
pre-existing problems, trouble in the building sector is further 
evidence that the global financial crisis has hit home in 
Australia. 
 
THURSTON