Land sales drop off cliff

Recovery in building industry may be slower than expected

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published January 24, 2013 3:24 pm AEDT

Expectations of a recovery in the building industry appear to have been dashed.

Residential land sales fell 18% in the September 2012 quarter, suggesting a rocky road for the building industry in 2013, according to a recent report by the Housing Industry Association (HIA) and RP Data. The fall follows three quarters of consistent increases in land sales, showing how cautious and sensitive consumers can be.

Despite the fall, volumes are still 15% higher than the record low they set a year earlier, according to HIA chief economist, Harley Dale. He added that the numbers reflect the uncertainty around whether the new home building sector can mount a sustainable recovery that Australia's population and economy require.

Given this report was on data for the September quarter, it pre-dates a recent HIA report that new home sales (as opposed to land) rose 4.7% in November, its second consecutive monthly rise.

And just yesterday, Boral Limited (ASX: BLD) upgraded its profit guidance for the first half of 2013, on the back of better than expected trading conditions, which were underpinned by favourable weather conditions. Analysts don't appear convinced, suggesting Boral's view is just a tad optimistic.

Another set of data suggests that housing is still in the doldrums. The Master Builders of Australia survey released earlier this week, suggests that conditions in the building and construction industry have worsened since 2011.

For building and construction companies like Boral, James Hardie (ASX: JHX), Fletcher Building Limited (ASX: FBU) and CSR Limited (ASX: CSR) the mixed news doesn't provide a definitive, clear picture of what's really happening in their industry.

The Foolish bottom line

We'll have to wait and see a few more industry updates before we really know if the housing industry is heading upward and recovering. With the RBA cutting official cash rates by 175 basis points since the end of 2011, it seems they are taking their time to work through the economy.

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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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