Gloomy hue to residential outlook, says paint maker

18 Feb 2013 | Sydney Morning Herald
THE feeble and fragile condition of Australia's residential property market is expected to continue for the rest of the year, with no signs of a recovery in the economically vital sector, the chief executive of one of the world's biggest makers of home paints says.

Gary Hendrickson, the chairman and chief executive of US group Valspar, said the company's Australian business, which is built around its Wattyl brand, had a 15 per cent decline in volumes for the first quarter, as weakness in the Australian market dragged down its performance in the region.

Mr Hendrickson told analysts in an earnings update that he held little hope of a recovery in the Australian residential property market.

"I would expect Australia to continue to be weak throughout, potentially throughout the remainder of the year, because there is no signs of improvement in the residential housing market in Australia," Mr Hendrickson said.

The sale of paint is a leading indicator of the strength of residential property, especially new housing construction, and also gives an insight into the mood of home owners as buying paint is one of the cheapest forms of updating or renovating a room.

The earnings season has thrown a spotlight on the troubled residential property market after Boral, the nation's biggest building materials supplier, revealed a $25.3 million loss for the first half because of weak market conditions and some restructuring costs.

Mirroring the materials company's bearish outlook, Stockland, Australia's biggest residential property developer, posted a $147 million loss for the first half, which was worse than expected.

Valspar, which books revenue of about $400 million a year in Australia, was also hurt by a restructure of its store network.

Mr Hendrickson estimated the paint market for new homes was down about 8 per cent for the quarter.

The long-term average for housing starts in Australia is 155,000 but the most recent trends show starts of closer to 140,000.

The Australian Industry Group and Housing Industry Association Performance in Construction Index for January showed the downturn in national construction had continued into the new year.

According to the index, activity and new orders contracted at steeper rates in January. Seasonally adjusted, the index retreated 2.6 points in January to 36.2.

The index has remained below the critical 50-point level, which separates expansion from contraction, for 32 consecutive months.

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