Construction Growth is Back — What It Could Mean for Your Property Investments

The HIA and Ai Group have released their latest construction industry stats. In August, the national construction industry expanded. That’s big news, considering it’s been flat or down for the past nine months.

The Performance of Construction Index (PCI) rose 6.7 points to 53.8. That might not sound like a lot. But technically, readings above 50 points indicate an expansion in activity.

The Index measures a number of different types of activity. For example, there’s new orders. They’re up 12.2 points to 57.6. General activity is also up, by 5.2 points to 52.8. In a positive sign for the medium term at least, employment is up 7.5 points to 55.

Some sectors performed better than others. It probably won’t surprise you to learn that apartment building was the strongest performer. Apartment building activity is down 3.3 points, but it’s still at 58.7. House building activity actually grew this month, narrowing the gap with apartments. The house building subindex rose 4.4 points to 54.4.

Peter Burn is the head of policy at Ai Group. He summarised the results, adding that strong residential construction is balancing out weak engineering construction. ‘Continued strength in the residential sub-sectors and a lift in conditions in commercial construction underwrote the welcome return to expansion in the national construction sector during August. … Encouragingly, new orders lifted for all four sub-sectors in August,’ said Burn.

HIA chief economist Harley Dale added that ‘The results for both the detached house and apartment sub-sectors reinforce the important contribution that new home construction continues to make to Australia’s economic growth.’

Whether that’s sustainable or not is a different question. ‘As new housing activity remains strong rather than achieving further growth, commercial construction and infrastructure investment needs to pick up the baton,’ said Dale. Try telling that to developers chasing record prices in capital cities. But I digress.

What does all this mean for property investors? Well, it’s a potential forward warning that there will be plenty of stock coming on line in the next few couple of months and years. Which could mean apartment price growth continues to slow. Or even go backwards. And yields are getting worse too. Not just because of price growth; with stock concentrated in certain areas, renters simply have more to choose from.

But not everyone can afford to invest in a detached house. Prices are rising all around the country. Even in smaller capital cities, houses cost significantly more than apartments with comparable amenities. That’s not great news for potential property investors who want to get some diversity and growth potential in their portfolios.

The good news is, there is an alternative. Without spending millions of dollars, you can harness the benefits of a large diversified property portfolio, crafted and managed by experienced professionals. You can invest in property via the Aussie stock market.

Money Morning publisher Kris Sayce explains how in his free report. It’s titled ‘Three Best Investments in Australia for 2015 and Beyond’. In this report, Kris reveals the names and ticker codes of three property-related stocks he believes are well worth your attention. Each gives you exposure to a different segment of the property market.

The material impact of higher residential construction might not be confirmed for some time. If you’d rather not take a blind gamble on an overheated apartment market, don’t miss Kris’s report. Find out how to download your free copy of ‘Three Best Investments’ today.

Eva Mellors,
Contributor, Money Morning

Leave a Reply

Your email address will not be published. Required fields are marked *

Money Morning Australia