The construction sector is weakening under pressure from the early stages of what appears to be a sharp downturn in housing construction and signs of a topping out in non-residential construction activity.
Dwelling investment reached a peak towards the middle of 2018. This marked the end of a record boom in new dwelling approvals and construction, with the main area of strength evident in higher-density housing (apartments, townhouses, flats and the like).
It is important to point out, however, that that these types of dwellings are generally smaller than detached houses and use considerably less materials in their construction, meaning the boost to activity was muted.
To date, the decline in actual activity in the dwelling sector has been mild. Dwellings approved and commenced in the past year are in the pipeline of construction activity and still need to be completed, and activity continues.
That said, the forward indicators of new or additional residential building has turned down sharply over the first-half of 2019. This suggests additional dwelling construction will fall sharply in the second half of 2019 and through 2020.
As illion’s economic adviser, Stephen Koukoulas notes, no significant improvements in actual dwelling construction activity are likely before 2021 given the new supply of dwellings that are hitting the market.
Due to the significant uncertainty and risks in the construction sector, there is a high likelihood of increased insolvencies. As such, it is critical for those exposed to the construction sector to take appropriate risk management precautions.
When a supplier, or business partner gets into financial difficulty, this will cause delays, disruptions, financial loss and reputational damage. With the right forward-looking approach, the risk of these negative outcomes will be significantly reduced.
What can you do to prepare?
Businesses in the sector routinely perform credit or financial assessments and/or risk monitoring, and illion has the best commercial data set on the market to compare all the options quickly and efficiently in order to make an informed decision about a robust end-to-end process.
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