Motley Fool Australia

Is the building industry about to crash?

construction, building, commericial

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.

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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.

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