2 shares that could benefit from Australia’s apartment boom

Credit: The Team

With more than 210,000 new apartments expected to flood the suburbs around Melbourne and Sydney over the next two years, some property analysts are warning of a national housing glut that could see investors lose tens of thousands of dollars.

You only have to do a quick Google search to find some of the headlines that might be making a few property investors nervous.

“Macquarie Bank names risky suburbs for apartments” The Australian

“Apartment oversupply at 70,000: JP Morgan” The Australian

“Apartment bust to shock tens of thousands of investors, report suggests”

“Housing glut by 2018, BIS Shrapnel warns”

Source: BIS Shrapnel Housing Report

Source: BIS Shrapnel Housing Report

Although some developments are likely to be delayed or even cancelled, major property developers like Lendlease Group (ASX: LLC) and Mirvac Group (ASX: MGR) are still likely to go ahead with major projects in a bid to take advantage of the pent up demand, especially in Sydney. In fact, many of their projects have already been pre-sold with strong demand coming from domestic and foreign buyers.

Although I would be cautious investing in an apartment at the moment, there may be an opportunity for share investors to take advantage of the construction boom that will accompany these developments taking into account that these properties will still need to be built, painted and furnished.

Two companies, in addition to the major property developers, that I think could stand to benefit from the apartment boom include:

Adelaide Brighton Ltd. (ASX: ABC)

Adelaide Brighton is the second largest supplier of cement products to the Australian construction industry. With a huge amount of cement product required to build these massive towers, it is unsurprising then, that the company is expecting this division to perform extremely well in 2016.

Adelaide Brighton has also embarked on a significant cost reduction and efficiency improvement program which the company is now realising the benefits from.

The shares are not particularly cheap, trading at nearly 18x earnings, but investors might take advantage of an opportunity if the share price weakens from here.

Nick Scali Limited (ASX: NCK)

All of those empty apartments will eventually need to be filled up with furniture and Nick Scali is well placed to meet that demand. The majority of its stores are located in Sydney and Melbourne and within close vicinity to a number of major developments.

The company only recently upgraded its FY16 full year guidance on the back of stronger-than-expected sales, with this strong momentum expected to continue in the short to medium term.

The shares have performed extremely well after the profit upgrade, but are still only trading on a forward price to earnings ratio of around 15.

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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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