Economists have described a 2.9% slump in building approvals as “deeply concerning” as fears grow throughout the sector that more building companies are about to collapse.
According to data from the Australian Bureau of Statistics, dwelling approvals fell a further 2.9% in December, after a sharp 10.2% drop in November. Most economists had expected a 2.5% bounce in approvals in December as big falls in interest rates and increases to first home buyer incentives kicked in.
Westpac economist Matthew Hassan says the data points to a difficult start to the year for the building industry.
“The continued slide in dwelling approvals is deeply concerning for the near-term activity outlook. Approvals in December were at the lowest level since the early 1980s (excluding the GST introduction period). Dwelling construction clearly fell sharply in the fourth quarter and is now set to fall even more heavily in the first quarter of 2009. Renovation and non-residential building activity is also set to contract heavily.”
The pressure is already starting to tell on some building companies.
Last week New South Wales 12th largest homebuilder, Wincrest, was placed in voluntary administration with debts of around $12 million.
Bruce Gleeson from insolvency firm Jones Partners has been appointed administrator and is in the process of trying to unravel the company’s affairs. It is believed that the poor state of the NSW housing market and an ill-fated expansion into Melbourne bought Wincrest undone.
However, the company is continuing to trade in a bid to finish 100 partly-built homes it has on its books.
The demise of Wincrest is unlikely to be the only builder collapse in 2009.
While Westpac’s Hassan still expects building approvals to recover over the course of 2009 in response to the RBA’s aggressive interest rate cuts and the Government’s stimulus package, the turnaround will take time.
“But the weakness in the fourth quarter points to a much bigger hole in dwelling construction over the immediate short term and highlights the downside risks to the 2009 outlook.”
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
