Slower times predicted for construction industry in 2012 given risk-averse banks

Australian construction industry profits are due to slip as the number of construction projects diminishes and construction costs increase in 2012, according to the latest report by Rider Levett Bucknall.

“Risk-averse banks and lending institutions continue to demand high levels of pre-sales in order to satisfy their stringent risk criteria. Consequently, there are still large numbers of projects unable to gain access to finance,” says RLB head of global research Roger Hogg.

Levels of construction in the Darwin and Canberra markets began to ease in the third quarter of 2011 and currently tenders in the marketplace are being keenly contested.

Darwin is hardest hit, with tender prices predicted to fall 11.4% and construction costs due to increase 5.3%, according to RLB.

In Adelaide tender prices will fall 3.4% and costs will increase 4% in 2012.

Tender prices increased moderately in other cities but labour and material costs are expected to exceed these price rises.

In Brisbane tender prices will increase 1% but costs are expected to rise 4%. In Canberra tender prices will increase 2.4% as costs increase 3.5%, in Melbourne prices will increase 2.7% as costs increase 3.5% and in Sydney prices will increase 2.2% as costs increase 3.5%.

Hogg says the private sector has failed to take in the slack from government stimulus projects.

“With the private sector failing to replace the government stimulated construction and infrastructure programs, contractor concerns regarding diminishing workloads will increase through the remainder of 2011 and into 2012,” he says.

The report found that residential construction work done for the June quarter was down 8% year-on-year and the national housing sector down 12% as house prices continued to fall in most capital cities.

National apartment construction slipped 2% although Melbourne bucked this trend, growing 11% by volume.

It also found that total non-residential construction work fell 24% for the June quarter year on year, thanks to weakening demand and low levels of consumer and investor confidence.

Hogg says as construction work falls, competition increases and to add to the pain costs are increasing at the same time.

“Margins are still being placed under pressure as competition for work is elevated. In the context of general levels of CPI, continued stable labour, materials and fuel costs will further enhance the cost competitiveness of building in Australia,” he says.

“It is difficult to say when these conditions will ease, but much depends on the strength and speed of the global recovery and the confidence this will provide the larger lenders.”

However, the outlook is not entirely grim. A number of projects have been awarded in Adelaide, including the $800 million Southern Expressway. National office construction increased 6.8% and industrial construction increased 20.8%.

 

 

 

Alistair Walsh

Alistair Walsh

Deutsche Welle online reporter

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