Is the building industry about to crash?

There are signs that don't look good for the construction industry.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A lot of industries follow a pattern of growth and subsequently decline. Resource companies are the epitome of booms and busts, banks are also known for it.

Another industry where booms and busts are common is the construction industry, as hard as it may be to believe in Australia.

Property and construction industries have been long-term growth industries for a long time, but there are a couple of factors which could wobble the foundations.

Debt-fuelled economy

Record-low interest rates and rising property values has given Australians a lot of impetus to go and spend their cash on properties, renovations and upgrades. This is a dangerous game when Aussies are sitting with huge amounts of debt in their name.

Apartment oversupply

It's been a long time coming, but the market is now seeing the predicted oversupply of apartments starting to have an effect, particularly in Brisbane. The problem could become more severely felt in 2018.

What it means

Factors that have been helping the construction industry could soon hinder the sector.

Approval rates are dropping for new constructions, which signals that there could be a downturn in the short to medium term.

I sincerely hope that nothing negative actually happens but there is a good chance that it might.

Mcgrath Ltd (ASX: MEA) timed their listing well, right before the Sydney property market seemed to have peaked. I wonder if the number of property-related listings we're seeing like Domain Holdings Australia Limited (ASX: DHG) and Wagners Holding Company Limited (ASX: WGN) are another sign that the people in those companies think this is the top of the market.

Foolish takeaway

Investors should be wary of shares that can be cyclical. If you invest at the top of the cycle you may be waiting a while before your capital recovers.

Motley Fool contributor Tristan Harrison has no position in any of the 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »