Builders hold their nerve amid housing gloom
By Simon Evans and Lucas Baird07 Jan 2019 — 11:00 PMTradies in the affluent suburbs of Australia's capital cities have little to fear in the short term. While the share prices of the big ASX-listed building products companies tumbled between 25 and 30 per cent from early October on the expectation that 2019 would be a rough year as the housing market soured, those on the tools are less pessimistic.
Kaliff Villaflor-Muir, the supervisor of an excavation site set to become one family's new basement and carpark in Sydney's Bellevue Hill, said yesterday that 2019 looked set to be "flat out" for his employer TC Build.
"I'll be here for a couple of months before moving onto another project up the road," he said. Mr Villaflor-Muir claimed while excavation work had always been busy work, this year was shaping up to be one of the most active yet in his eight years on the job.
Kaliff Villaflor-Muir, a site supervisor for TC Build, busy working in Bellevue Hill, Sydney. Peter Braig
CSR, which makes Gyprock Plasterboard, PGH Bricks and Hebel blocks, Fletcher Building with its Rocla concrete and Tradelink bathroom and plumbing supplies, Boral with its large range of building products, and the country's biggest cement group Adelaide Brighton were among those hit hard as investors factored in that by late 2019 conditions would be much tougher in housing construction and renovations.
But the tradespeople and builders using the products have more optimism, even though there is a sea of negative headlines as house prices slide in Sydney and Melbourne and banks tighten their lending criteria.
AdvertisementLuke Dennett, who runs D Construction Pty Ltd, based in Sydney's eastern suburbs, said he went through some slightly anxious moments in August last year when his usually long pipeline of future projects looked as though it had dried up temporarily, but got on the front foot with his large network of contacts and now his 2019 order book is full.
"I didn't have to before, it was always coming at me," he said. "I've been busy for 15 years."
The temporary slowdown in August was unusual. Sydney's eastern suburbs are pretty much recession-proof. "In the Bondi area and surrounds, people don't feel recessions," Mr Dennett said. "2008 was one of my busiest years," he said, referring to the global financial crisis having minimal impact.
But he said further out in the western suburbs he has heard from people in the trade that things are starting to tighten up. "There's been a bit of talk that things have been slowing down there," Mr Dennett said.
ASX-listed building stocks have been crunched amid predictions of a souring housing market in 2019 but builders on the tools are still busy. Tamara Voninski
'Not seeing any sign of a slowdown'
Brendan Patterson, a builder who runs Stardust Constructions in Melbourne's south-eastern suburbs, which does renovations and new builds, says his order book stretches well into mid-2019 with one larger project earmarked for completion in October. "At the moment I'm not seeing any sign of a slowdown," he said.
He's been very busy over the past few years as strong population growth in the southern capital and historically low interest rates made for robust demand. "We've been consistently busy for a long time," Mr Patterson said.
This in turn had flowed through to strong demand for specialist tradespeople such as carpenters, tilers and cabinetmakers. "There's plenty of tradespeople out there but it's holding on to the good ones that's the important thing," he said.
Mr Patterson says its hard to make predictions too far out and the industry does have its cycles. He acknowledges that he wasn't as busy in the lead-up to the end of 2018 as he was the previous year.
Housing Industry Association senior economist Geordan Murray said the tighter credit environment posed a problem for some borrowers in a softening Sydney and Melbourne housing market, and while that credit squeeze had been largely quarantined to the investor side of the market in 2017 it had now spread wider. "More recently the effect of this squeeze has spilled over into the owner-occupier market," Mr Murray said.
The Housing Industry Association New Home Report showed that detached house sales increased by 3.6 per cent in November. But they were still 12.2 per cent lower than last year and Mr Murray said they were below what had otherwise been typical for most of the period since 2014.
Canary in the coalmine
The share prices of the ASX building stocks are something of a canary in the coalmine. Stockmarkets traditionally look nine to 12 months ahead.
Fletcher Building, dual-listed on both the Australia and New Zealand stock exchanges, generates 30 per cent of its revenues from an Australian building products portfolio, which includes Tradelink, Iplex pipes, Rocla concrete, Stramit steel products, Tasman Sinkware and Fletcher insulation. Morgan Stanley analyst Andrew Scott has a 12-month price target on Fletcher of $5.71. It was trading at $4.90 yesterday.
Mr Scott believes Boral and James Hardie offer more protection for investors because they have a large geographic diversification with large operations in North America. Boral also has a large exposure to the infrastructure sector through the supply of cement and asphalt for road and bridge projects in Australia.
Australia's biggest cement company, Adelaide Brighton has been sold off heavily.
UBS analyst James Brennan-Chong says a poor outlook for the housing sector casts a "long shadow" over the stock. He expects Adelaide Brighton shares to be trading at around $4.20 in a years' time.
Credit Suisse has a 12-month price target of $5.80 on Boral, $21.20 for James Hardie and for CSR, the maker of Gyprock plasterboard, PGH bricks, Hebel precast concrete blocks, and Bradford insulation and storage battery products, it has a 12-month forecast of a share price of $3.30. CSR shares were fetching $5.74 on May 7.
Builders hold their nerve amid housing gloomBy Simon...
-
- There are more pages in this discussion • 14 more messages in this thread...
You’re viewing a single post only. To view the entire thread just sign in or Join Now (FREE)
