Fragile Conditions in Construction Sector
As Australia's property market has weakened over the last 18 months, so has Australia's construction sector. Based on recent data, the construction sector is experiencing its largest decline in almost six years.
According to the Australian Bureau of Statistics, the Australian Performance of Construction (PCI) index continued to fall in July 2019. Declining by 3.9%, the PCI currently sits at 39.1 in Australia. This marks the eleventh straight month of declines in the sector. Further, the employment rate in the construction sector has also softened by 7.7%, taking the PCI employment index down to just 35.9%. While concerning, these figures are to be expected given Australia's construction industry has been facing strong headwinds over the last year in particular.
According to ASIC’s Australian Insolvency Statistics report released in July, there was an increase in the number of construction companies that entered insolvency in the first half of 2019. These numbers are as follows:
• January 2019 - 100
• February 2019 - 88
• March 2019 - 153
• April - 115
• May - 142
Further, recent research from Charter Keck Cramer detailed that just 2,200 apartments have been brought to market in Melbourne in 2019. Compared to the 23,000 apartments brought to market each year in 2014 and 2015, the slowdown in Australia’s building and construction industry is clear.
There are several factors that have created challenges across Australia's construction sector over the last 12 months. These factors include profit margin pressures, increasing commodity prices, increasing material prices and the broader slowdown of the global economy.
With the recent rate cuts by the RBA, some industry professionals believe that the wider construction industry is experiencing moderate contraction. It's the residential sector, in particular, that has been hit heaviest as banks tighten lending for owner-occupiers and investors and property prices decline.
For construction companies faced with the challenges that come with contractions in the sector, remaining a long-term player in the industry will be centred on keeping overheads as low as possible and not over-committing to any project just to bring money into the business. In fact, this can have a counter-intuitive effect on the health of construction businesses if they begin to work on projects too far outside their usual expertise.
Just like the property industry, the recovery in the construction sector will be a gradual one as policymakers work through options to stimulate the economy.
For further information about real estate in this area, contact No Bull Real Estate, your most reliable and friendly real estate agents in Newcastle & Lake Macquarie. Buying, selling, leasing for residential, commercial, industrial property, contact your local expert to buy, sell or lease today on 49552624 or www.nobullrealestate.com.au