‘PERFECT STORM’: This builder says 7 factors have collapsed the housing market
House builder Tamawood says seven factors have created a “perfect storm” that sent profitability tumbling in the last six months.
These include the continued fall in house prices, and wet weather on their home turf in Queensland.
The company (ASX:TWD) downgraded first half profit forecasts by another 12 per cent, or a total of 26.9 per cent below the $4.2m made in the same period in 2018.
That would put anticipated profits at just over $3m.
It’s the second downgrade in the last year: they downgraded full year 2018 profit by $800,000 in June.
Chairman Robert Lynch told Stockhead while issues like wet weather pushed some profits into the coming half, he expects more of the same in the coming six months as the federal election and continued industry problems cause upheaval.
Researcher Moody’s Analytics is predicting another year of house price falls, marking Melbourne out as facing a 6 per cent all overall and Sydney with a 3.3 per cent fall.
Tamawood left out little in their list of what was to blame for the latest downgrade.
1. They said house prices may have dropped but land prices hadn’t, and in some cases had risen. They believed land banking by developers and “large Japanese corporations” could be behind this.
2. The Royal Commission has forced banks to tighten lending standards, leaving some people unable to get mortgages for new homes or financing to build.
3. Labor’s policy to remove negative gearing from existing homes could be already driving investors out of the market, even though they are still in opposition in Parliament.
“The Labour policy had merit two to three years ago when the housing industry was overheated, however in the current prevailing circumstances, we are seeing further declines in residential house sales due to the pending implementation of this policy,” Tamawood said.
4. Changes in Queensland Building and Construction Commission policies, such as “over vigorous regulatory behaviour and aggressive enforcement tactics”.
The QBCC has been given new powers of investigation to make sure regulations are being properly complied with, and following the evacuation over Christmas of Opal Tower residents in Sydney, the Queensland government has vowed to continue ratcheting up pressure on state builders and developers.
Mr Lynch said the change of policy “was to become extremely aggressive towards builders who had complaints lodged by clients”.
He said where once the QBCC would act as a mediator, now it immediately issues an infringement notice and companies have to defend themselves in court.
5. Tamawood blamed the change in prime minister for a drop in sales for several weeks.
6. As well as an unspecified period of wet weather in the first half.
7. Finally, the company admitted they were also slow to react to the changing market conditions.
Tamawood shares fell 6 per cent to hit $3.57.