Apartment building leads further contraction in construction sector in August

Apartment building was the weakest performing construction sub-sector in August, as the Australian Industry Group (AIG) Australian Performance of Construction Index fell for the 27th consecutive month with no sign yet of a new financial year turnaround for the sector.

The index, compiled in conjunction with the Housing Industry Association, was down 0.4 points to 32.2 in August. Readings below 50 indicate a contraction in activity with the distance from 50 indicative of the strength of the decrease.

Survey respondents cited subdued conditions, a shortage of new tender opportunities, project delays and difficulty securing funding as impacting on growth.

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Source: AIG

In July, the index fell 2.2 points with AIG noting that the rate cuts in May and June had not spurred on any kind of rebound for the sector.

In August, apartment building was the weakest-performing sub-sector in the month – down 10.8 points to 22.1 – offsetting gains from the previous month.

Across the other sub-sectors, house building rose to 31.5 and commercial construction increased to 34, while engineering consecution fell to 35.7

The key new-orders sub-index fell 5.8 points to 28.8.

Commenting on the August results, AIG director of public policy Peter Burn said the continuing severe slump in residential and commercial construction was a drag on the overall economy.

“In August a weakening in the engineering construction sector contributed to a further worsening in the sector as a whole. Even though interest rates have fallen recently, the near-term outlook for the construction sector deteriorated with a further fall in new orders.

“The drop-off in new orders was particularly sharp for engineering construction and the apartment sub-sector," Burn said.

HIA chief economist Dr Harley Dale says that against a backdrop of five weak quarters for new dwelling investment, it is concerning that the first two index updates for 2012-13 “provide no sign of a turnaround”.

“The persistent weakness in the sub-indices for activity and new orders into the new financial year raises question marks as to whether we will see any tangible evidence of improved conditions in the construction industry by the December 2012 quarter. You would hope to be seeing a modest improvement by that quarter, but the odds of sighting that improvement appear to be lengthening," says Dale.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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