This week we’ll take a look at Australia’s building products manufacturers and the struggles they are encountering in the face of a slower than expected recovery in housing construction, high costs and the country’s archaic industrial relations system. Companies such as Boral Limited
(ASX:BLD), CSR Limited
(ASX:CSR) and Adelaide Brighton Limited
(ASX:ABR) have cut thousands of jobs, closed plants, reduced production and enacted write downs in response to a construction sector that remains under duress despite historically low interest rates, a growing population and incentives from state governments. Things haven’t improved in the ABS’ June Quarter figures, with a 0.3 per cent quarterly decline adding to a 0.9 per cent slump in the year to the end of June. Economists had expected a rise of one per cent.
According to Boral boss Mike Kane, the stagnant housing market has contributed to a slowdown in sales of materials such as bricks, windows and timber products, and construction earnings were more reliant on resources related work in Queensland and Western Australia. Mr Kane expects some recovery down the track in NSW and Victoria's housing construction however says that work in Queensland is likely to remain well off the pace. According to analysts, the primary effect of the RBA’s rate cuts over the past 12 months have been to drive prices of established houses and apartments. This is in contrast to the RBA’s stated objective of an uptick in construction to be a driver of growth as the resources investment boom fades, and forecasts such as Mr Kane’s will surely be a cause for concern for the central bank, as they are reflective of businesses delaying building projects as a result of caution about the economy.
Real Estate figures
The Australian Bureau of Statistics has released its construction work data for the June quarter, revealing a 0.3 per cent fall. Over the year to June, the volume of construction work is down 0.9 per cent. Economists had anticipated total construction work to rise 1 per cent in the quarter.
Commentary
FNN spoke to AMP Limited
(ASX:AMP) Capital Chief Economist Shane Oliver and asked if he thinks house prices are at risk of a crash:
“The reason I don’t see a house price crash anytime soon is, firstly a lot of the over-valuation we had five to ten years ago has been worked off. For example, Sydney property prices have gone nowhere over the last decade if you allow for the impact of inflation; so they’ve just kept up with the inflation rate on average. And the wages have been going up so consequently price to income ratios have gone down, even though they’re still high. The other factor that gives me confidence we won’t see a crash is that we’ve still got an undersupply of housing. American house prices collapsed through the GFC because they built too many homes. We haven’t built enough homes, we’ve got a shortage of housing, very low vacancy rates, upwards pressure on rents.”
To watch more of the interview click here:
Australian auction results
This week’s auction results across Australian capital cities - Sydney recorded a 79 per cent clearance rate from 310 properties for auction, Melbourne cleared 78 per cent from 249 properties, Brisbane had a 38 per cent clearance rate from 22 properties listed and Adelaide cleared 64 per cent from 27 reported auctions.
Commercial property sector results
Cromwell Group
(ASX:CMW) reported a 28 per cent increase in operating earnings, to a record $102.4 million and says its $2.4 billion property portfolio is continuing to generate strong, stable cash flows. Cromwell posted a full year statutory profit of $46.2 million, impacted by $26.4 million in acquisition costs. The Brisbane based property group is aiming to grow its funds management platform by as much as $1.6 billion over the next few years via a soon to be launched diversified fund and further major acquisitions.
Watpac Limited
(ASX:WTP) has posted its second consecutive loss despite the listed developer selling off more than $120 million in property assets and repaying its property-related debt over fiscal 2012. The group reported an after-tax loss of $4.7 million for the full year, following a $50.2 million loss the previous year. Watpac says the past financial year was a period of consolidation and organisational reform and blamed the loss on costs associated with closing civil operations in Queensland and Victoria as well as nearly $11 million in property impairments.
Abacus Property Group
(ASX:ABP) has posted a steep rise in its full year net profit of $68.3 million, from $24.5 million last year, and says its portfolio is well placed to cope with the current challenging conditions. Managing Director Dr. Frank Wolf says consistent growth in the property investors underlying profit and cashflow from operations illustrates the strength of its diversified business.
Charter Hall’s Group
(ASX:CHC) full year net profit has soared to $54.8 million, up from $16.7 million last year. In the year to June 30, operating earnings lifted 13 per cent to $71.8 million. Joint Managing Director, David Harrison says the group is forecasting growth of 7 per cent in operating earnings per security for the current year.
