Speculation that the federal government is readying a large home buyer’s grant could put the building materials sector on an earnings upgrade cycle.
There are reports that the Morrison government will announce later this week that new home buyers will get a cash handout of between $20,000 to $40,000.
This fourth round of stimulus is aimed at protecting the home construction industry from falling off a cliff, according to a report on Yahoo.
New housing grant
Around 380,000 tradies are expected to benefit from the generous cash handout for existing and first-home buyers looking to purchase newly constructed dwellings.
There’s even talk that the grant will be made available for home renovations, although we shouldn’t get too excited just yet as nothing is confirmed.
The only thing that seems to be reasonably certain is that the new housing grant will at least match the $21,000 offered by the Rudd government during the global financial crisis.
Building to an upgrade
If the new measure works as intended and provides a strong pipeline of home construction activity, brokers will likely scramble to upgrade their earnings expectations for a number of ASX shares.
It’s probably no coincidence that two of the four shares are among the top five best performers on the S&P/ASX 200 Index (Index:^AXJO) today. The pair is Boral and Adbri as they are the worst in the group and would probably have the most to gain.
More stimulus in the pipeline
But the industry may also get a second tailwind. State governments are also tipped to announce separate stimulus on top of the up to $40k grant.
Governments are forced to act after the industry’s peak body, Master Builders Australia, predicted 400,000 building businesses and 1.2 million jobs were in jeopardy due to housing downturn.
The association is pushing for renovations to be included in the package as it claims that will generate $7 billion in economic activity and 24,036 jobs.
“Work for builders and tradies in 2020/21 is fast evaporating and the indications are that 2021/22 will not be much better,” said the chief executive of Master Builders, Denita Wawn.
Other ASX stocks to benefit
If renovations are included, it won’t only be building materials companies that will be smiling. Hardware retailers owned by Wesfarmers Ltd (ASX: WES) and Metcash Limited (ASX: MTS) are also likely to benefit.
If you are wondering why the share prices of property developers like Stockland Corporation Ltd (ASX: SGP) seem to be in the doldrums today, it’s probably because new housing estate developments only make up a part of their portfolio.
Unfortunately for them, the other parts (such as shopping malls) are still under significant pressure.
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Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc. The Motley Fool Australia owns shares of Wesfarmers Limited. 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 Scott Phillips.
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