Builders gloomy about year ahead: MBA

Larry Schlesinger, Smart Company

Builders surveyed by Master Builders Australia expect overall residential and commercial construction activ­ity to be lower over the next six months, in line with a bleak forecast released earlier by the Housing Industry Association.

In MBA’s December quarter survey, builder sentiment sits below the neutral or satisfactory 50 mark with both residential and non-residential sectors experiencing poor conditions despite some recent stabilisation following the November rate cut.

Sentiment is particularly poor for residential construction with the index for current conditions falling again in the December quarter to 36.3 close to levels reached during the GFC. The index picked up in the December quarter but remains at a level indicating that builders expect residential building conditions to decline over the next six months.

In the non-residential sector, the index measuring cur­rent conditions registered 38.1 in the December quarter, down on the previous reading and well below the satisfactory level. Non-residential builders face the prospect of falling activity levels with the conclusion of government stimulus programs.

Sentiment is clearly being influenced by declining profit levels with overall industry profitability also sitting below the 50 mark, not far from lows reached during the GFC.

“Builder sentiment remains gloomy, not helped by disappointing sales and display centre traffic/enquiries. Builders are not seeing any pick up in private sector demand to replace government economic stimulus programs,” MBA reports.

As a consequence of a drop in activity and profits, builders surveyed by MBA say that they may need to reduce levels of employees and subcontractors in the period ahead.

In line with figures from the HIA showing new home sales rose by 6.8% in November, the December MBA survey, which took into account the November rate cut, does reveal “some early signs of improvement in a number of the indicators, an early indi­cation of a possible turnaround in sentiment related to the November rate cut”, but overall the picture is downbeat.

Responding the December quarter survey results, MBA chief economist Peter Jones says the RBA should consider further rate cuts to make sure a private sector recovery is able to gain momentum.

“Builder sentiment remains gloomy with the latest survey revealing poor profitability as well as disappointing sales and display centre traffic/enquiries,” Jones says.

“The building industry is struggling, with little evidence of the pick-up in private sector demand needed to fill the gap left as government economic stimulus programs end.”

“The building and construction industry has lost the cushioning effect of government stimulus programs whilst the credit squeeze and other regulatory constraints continue to affect business operating conditions,” Jones says.

“The national survey confirms how weak conditions have become, with the December quarter revealing significant excess capacity in the industry as well as evidence that builders are experiencing very little difficulty finding labour resources.”

“The latest readings do not auger well for activity in the building and construction industry over the next six months and with profits under pressure it is little surprise that builders are indicating they may reduce levels of employees and subcontractors in the period ahead,” he says.

This article first appeared on Property Observer.

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