Access to credit drags construction industry

By Gerv Tacadena | 09 Oct 2019

Australia's construction industry marked its 13th consecutive month of decline in September, dragged by the slump in apartment and engineering works, according to the latest Australian Performance of Construction Index (PCI) report.

The PCI, based on a survey of construction industry purchasing managers, fell to 42.6 points in September. A reading below 50 indicates a contraction in the industry. The Housing Industry Association (HIA) and Ai Group produce the monthly index.

The index remained in the red despite the improvement in detached housing. The segment’s pace of decline slowed as the sub-index rose to 46.2.

"Both the activity and new orders indexes in house building recorded further increases in September, suggesting the pace of decline in this part of the industry at least has eased noticeably over recent months," Peter Burns, head of policy at Ai Group, told The Australian Financial Review.

The report said apartment building remained the weakest-performing area, declining for an 18th consecutive month, and at an accelerated rate. The apartment sub-index fell by 0.9 points to 33 points in September. The engineering index also fell to 39.3 as new orders continue to decrease.

This could be due to the lack of demand from investors, who are still testing waters in the housing market. A recent survey by the Property Investment Professionals of Australia (PIPA) found that while 82% of investors believe now is an excellent time to get back to the market, they are still concerned about the stricter access to credit and the state of the Australian economy.

The construction industry is hoping that the recent rate cuts could spur confidence and boost activity from investors.

"Recent interest rate cuts have contributed to the stabilisation of home prices, following persistent declines over the last couple of years. This is a sign that confidence in the housing market has improved although the volume of property transactions remains low," HIA economist Tom Devitt said.

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