Australia on the cusp of another construction boom: CSR's profits spurt as housing demand soars

By @diplomatist10 on
Sydney construction
A residential construction worker watches new apartments being built in Sydney's inner-city suburb of Zetland, June 24, 2015. Reuters/Jason Reed

Despite the shadow of an economic slowdown, Australia is set to witness hyper activity in construction in the next financial year with apartments, roads and rail projects driving the new infrastructure boom. This has been revealed in a recent construction outlook survey.   

The emerging boom will be the legacy of "infrastructure prime minister” Tony Abbott, whose budgets had earmarked big outlay for projects on modernisation of major roads.

According to Australian Constructors Association’s executive director Lindsay LeCompte, the outlook manifests a growing confidence in the construction sector and its recovery from the resources slowdown, reports The Australian Financial Review.

Best year for construction

The outlook report of the lobby groups also predicts 2016-17 to be the best year for construction in four years, after the resources slowdown set in. Many construction companies are expecting an average 4.7 percent growth in the coming year.

According to the outlook, there will be robust growth in multi-level apartment development in line with high apartment building approvals in Sydney, Melbourne and Brisbane. From the growth rate of 13.7 percent in 2015/16, it will remain at 8.1 percent in 2016/17, reports Sourceable.

Engineering construction is expected to face subdued growth. It may fall from the 5.2 percent rate of 2015-16. But, big-ticket road and rail projects such as Sydney's WestConnex and the Victoria's East West Link project will drive up the engineering construction at 4.8 percent growth in 2016-17, the survey noted.

Good for Economy

Australian Industry Group chief executive Innes Willox said the outlook for construction was balanced and good news for the broader economy.

“It's a promising outlook of a more rapid rebound than had previously been expected," he said.

The revival in engineering construction in 2016-17 will happen despite the feared contraction from retreat of mining and resource projects. That will be compensated by strong expectations of a pick-up in transport and communications projects.

“With commercial construction anticipated to lift in 2015-16 and 2016-17 and with the apartment building boom expected to continue, the outlook is for the most balanced pattern of growth for many years," he added.

In the East West Link, there was a deadlock over the use of $1.5 billion federal funds because of an embargo set by the Abbott government against using the funds for any other project. 

Prime Minister Malcolm Turnbull ended the standoff on that issue between Victoria and Canberra. Abbott wanted the funding to be used for the East West project and not for any other projects. Now Turnbull has eased the ban and the money could be used for funding the Metro Rail plan.

Abbott had campaigned for the 2013 election promising $1.5 billion each for Sydney's WestConnex and Melbourne's East West Link as part of the 15-year infrastructure plan.

CSR posts strong earnings

Meanwhile, building products maker CSR Limited has posted strong half year earnings with an upbeat outlook on demand and beat the market worries of a housing slowdown.

The company said the sustained growth in building approvals has helped it to improve margins. The profits jumped 13 percent in the six months to September. Noting that there are no signs of a slowdown in construction over the medium term, CSR also endorsed a sharp full year profit increase.

CSR reported a 32 percent increase in net profit after tax (pre significant items) to $92.4 million for the six months ended on 30 September 2015.  The net profit after tax was $77.6 million, up by 13 percent. The remarkable growth in half-year net profit was driven by significant increase in earnings from Building Products and Aluminium. The jubilant company has declared a 35 percent increase in the interim dividend.

(The article was updated on Nov.4 with new information on CSR earnings report) 

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