Building approvals no longer as safe as houses: Sector earnings to slowdown

Tue 31 May 22, 1:56pm (AEDT)
Construction - Home under construction
Source: iStock

Key Points

  • Australian building approvals fell -2.4% on-the-month in April
  • Building approvals are down -32.4% year-on-year following stimulus from last year
  • A slowdown in earnings could be a factor in play for ASX building stocks

Australian building approvals are rolling over, down -2.4% on-the-month in April, following a -19.2% dip in March, the Australian Bureau of Statistics reported on Tuesday.

From a year-on-year perspective, total dwelling approvals have dipped -32.4% in April, cycling through a great pull-forward in stimulus from last year (e.g. Home Builder grant closed for Victoria in mid-April)

Daniel Rossi, ABS Director of Construction Statistics, said: "The fall in the total number of dwellings approved in April was driven by approvals for private sector dwellings excluding houses, which fell 6.1 per cent."

The value of total building approvals fell -12%, but the value of total residential buildings increased 4.7% after an -18.7% fall in March.

Mean reversion

Dwelling approvals are reverting closer to historic trend levels after a volatile 2021.

2022-05-31 12 37 37-Window
Source: ABS (Annotations by Market Index)

"Still, the above would appear reflective of cyclical challenges now bubbling away, which could be quite problematic if the RBA needs to tighten, due to budding inflationary pressures," said Aequitas Investment Management.

A look at ASX-listed players

The main ASX-listed building material companies over $1bn market cap include (% year-to-date performance):

The average stock has declined -20.4%.

In Brickworks' half-year FY22 results, the company said that demand for its building products remains strong, with a large backlog of housing construction work in the pipeline.

However, Brickworks flagged "medium-term uncertainty" due to the post stimulus-induced surge and weak building approvals.

While most of these companies reported solid earnings in the first-half and provided sound commentary for the full-year FY22, the ongoing decline in building approvals could catch up to earnings.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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