Builders nervous as end of first home grant approaches

MIRVAC and Stockland are bracing themselves for the end of the first home owners grant and its effect on the volume of house sales.But this concern comes against the backdrop of data for April which showed the number of new housing loans was at a 14-month high, rising by 0.9 per cent for the month.Peter Jones, the chief economist at the Master Builders Association, said loans to owner-occupiers for the construction and/or purchase of new dwellings combined had risen strongly in the past six months, setting the scene for a pick-up in residential building as the upswing in housing finance translated into activity. But he said there was little sign of improvement in loans to build investment housing, the sector of the market suffering most from the credit squeeze.For Mirvac, UBS said it expected that residential sector earnings would hit bottom next financial year before recovering in 2011-12."We argue that the presently strong first home buyer activity is coming with low margins. Investors wanting residential exposure should look through the presently artificially high volumes towards a 2011 recovery," the broker said."Given the sharp slowdown in the national residential markets, we do not expect a material recovery from Mirvac's residential development business until 2011 at the earliest.He said although affordability had improved considerably, given interest rate cuts and drops in house prices, the broker believed rising unemployment and household repayment of debt would continue to be the main factor affecting the residential market.Bank of America/Merrill Lynch's property team says Mirvac's residential book is exposed to high-end apartments, which have suffered in the downturn, as illustrated by Stockland's ailing apartments business.But it said Mirvac would experience the full brunt of this weakness in 2009-10 through a combination of falling prices, volumes and margins.