The latest survey by stockbroking company Evans and Partners shows a worsening situation for the construction sector. [The Evans & Partners survey was conducted in May and June 2012 of private companies, consultants, service providers and customers in the construction sector, excluding mining.] The research indicates at least ten companies a week are failing due to rising labour costs, narrow profit margins and constrained bank funding. The outlook doesn’t look good with 40 companies reported to have collapsed in the first ten days of July. The results reinforce recent figures that show Australia’s construction sector contracted for the 25th consecutive month. An industry roundtable meeting convened at Parliament House in Canberra this week to discuss the current state of the residential building industry. Leaders in the sector were united in calling for urgent action from all levels of government.
With the Australian housing sector experiencing a sharp slowdown, FNN recently spoke to AMP Limited’s (ASX:AMP) Chief Economist, Dr Shane Oliver to hear his thoughts on whether house prices will continue to decline:
"Well, in the very short term they could come off another 2/3/4 per cent over the next few months. And that’s basically as investors and buyers hold back given the uncertain economic environment. But I think by year end we’ll start to see a recovery coming through in housing. We’ve seen prices already come off, affordability has been improving. I think we’ll see more interest rate cuts from the Reserve Bank and as people gradually start to get more confident that they will keep their job, then I think we will see a recovery starting to come through." To watch the full interview
Real estate industry figures
According to SQM Research, ABS 2011 census data shows a shift to renting over owner occupation. The census indicates 29.6 per cent of residential occupiers over the past five years were tenants compared to 27.2 per cent in 2006. The survey also reveals rents have been rising well above inflation with Perth and Darwin posting rental growth at over 12 per cent per annum since 2006. The national average rose over 8 per cent for the same period.
Residential property market
Australian Property Monitors has posted the results of auction clearance rates across Australia’s capital cities at the weekend. Sydney recorded a 64 per cent clearance rate from 203 properties for auction, Melbourne 54 per cent from 162 properties, Brisbane 29 per cent from 38 properties and Adelaide 36 per cent from 21 reported auctions.
Commercial property sector
Australian real estate investment trusts have shown a solid performance in comparison to other asset classes. The S&P/ASX 300 A-REIT Index has shown an 11 per cent gain in the last financial year. Bonds were only slightly better performing. Listed property funds are coping better with a turbulent share market as many are focusing on capital management, decreasing gearing levels and selling off non-core assets, making REIT a defensive strategy for investors. DEXUS Property Group (ASX:DSX) is one example that recently sold part of its US real estate portfolio for $770 million.
AMP Limited’s (ASX:AMP) funds management business AMP Capital has struck a deal with a Beijing-based pension fund. The Chinese portfolio, which has global listed real estate investments, could provide AMP Capital with a lucrative income stream.
REA Group Limited (ASX:REA) has announced a national marketing alliance with News Corp’s (ASX:NWS, NASDAQ:NWSA) Australian arm News Limited to increase awareness of their brands, including realestate.com.au.
Challenger Diversified Property Group (ASX:CDI) has signed four new leasing agreements across Sydney and Melbourne.
A Lend Lease Group (ASX:LLC) consortium has won the bid to build the $2 billion Sunshine Coast University Hospital in Queensland.
US Masters Residential Property Fund (ASX:URF) listed on the Australian Stock Exchange this week. The property trust opened at its listing price of $1.63. The fund has been established to give investors the opportunity to gain exposure to a diversified portfolio of US-based residential property assets.