Builders' profits stack up

The residential and commercial sectors have posted strong profit results for the September quarter, despite Western Australia’s labour and material shortages, according to a quarterly snapshot of trading and economic trends.

The recent Master Builders Association of WA survey of 72 of the state’s major builders found 90 per cent of builders had average or above-average profits in the September quarter.

The MBA believes greater selectivity of building work, better pricing, improved on-site productivity and more predictable cost escalation have all led to higher profits.

But where builders were asked to describe their profitability levels on a scale of ‘poor’ through to ‘very good’, it was the commercial builders who came out in front.

The report found 57 per cent of WA’s commercial builders achieved ‘good’ profit levels in the September quarter, compared with 37 per cent in the March quarter and 42 per cent in the September quarter of 2006.

The number of respondents who experienced fair (2 per cent) and poor (5 per cent) profits also decreased from previous quarters.

Despite the improvement in the commercial building sector’s profitability, no respondents experienced ‘very good’ profitability levels in the September 2007 quarter.

WA’s housing sector, meanwhile, appears to be recovering from a mid-year slump in approvals.

A total of 56 per cent of residential builders described profitability levels in the September quarter as ‘good’, compared with 32 per cent in the March quarter and 38 per cent in the September quarter of 2006. 

No builders reported ‘very good’ profits in the September quarter, even though 12 per cent achieved the high level of profit in the same period last year.

The report noted builders of larger homes did not experience the same growth in profitability, as skill shortages and cost escalation impacted on the sector due to longer construction periods.

The MBA predicts there may be a post-election revival in the housing sector, as potential buyers’ short-term rental agreements expire and they move into home ownership.

Residential builders are finding sales inquiries remain sound, adding to optimism about future building activity.

MBA housing director Gavan Forster said despite the housing slowdown, builders were facing a hectic pre-Christmas completion rush and optimism remained high.

On the commercial front, building activity remains at the peak of the cycle with no downturn in sight, he said.

“Workloads remain full, and will continue to be in 2008, despite the expected slowdown in new tender work over the festive season,” Mr Forster said in a statement.

Although demand pressures have eased considerably in the housing sector, shortages still remain in finishing trades.

According to MBA’s Building Industry Employment Monitor, the number of job advertisements and calls for subcontractors placed in The West Australian newspaper (4,838) in the four months to October 2007 was 39 per cent lower than the same period in 2006.