New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2><a target="_blank">Building Consents</a></h2>
NZ Consents — Treats, Not Tricks
There remains little to be scared of in building consents numbers. Residential has remained strong all year despite soft housing market activity (which appears it may be turning) and weaker industry sentiment. Non-residential may be easing, but with a healthy pipeline we anticipate any downturn will be modest. With interest rates at record lows and continued high migration we see little reason why construction activity will not remain elevated for the foreseeable future.
Headline residential number hits cyclical high
September consents of 39.8k (annualised) was the highest headline number since June 2004. The +7% mom/+24% yoy surge was largely driven by a big contribution from inherently variable apartments in Auckland and Wellington. Beneath this noise houses, -5% mom/+1% yoy, were the softest this year, but only by a touch. Overall floor area consented, the best measure of future construction activity, was up +13% yoy taking YTD to +7%.
Residential consents have been strong all year (despite relatively widespread concerns that the market may be softening). Strength has been geographically broad based including all NZ’s largest construction regions: past six months Auckland +11% yoy, Canterbury +12%, Waikato +13%, Wellington +8%, and Bay of Plenty +7% (which collectively account for c.80% of construction activity). The resilience in Auckland rema<a target="_blank"></a>ins notable given softness earlier in the year and housing market challenges, highlighting mid-market demand is robust.
Non-residential potentially has peaked, but pipeline still healthy
September continues a string of softer months for non-residential consents, up +11% in value terms, but down -23% in floor area (sqm) taking the past four months to +6% yoy in value and -24% in sqm. When coupled with anecdotes of a thinning pipeline (largely in Auckland), we do suspect investment could soften medium-term. That said, we expect any downturn to be relatively modest. The pipeline is healthy, over the past 12 months value consented is up +13% and sqm +5%, with strong economic and population growth over recent history necessitating investment across most segments.
Figure 1. NZ building consents (September 2019)
<table class="table table-striped">
<thead>
<tr>
<td style="width: 99.1pt;">
<a target="_blank">&nbsp;</a>
</td>
<td style="width: 50.6pt;">
1 month
</td>
<td style="width: 50.6pt;">
3 months
</td>
<td style="width: 50.6pt;">
6 months
</td>
<td style="width: 50.6pt;">
Annual
</td>
</tr>
</thead>
<tbody>
<tr>
<td style="width: 99.1pt;">
<a target="_blank">Residential</a>
</td>
<td style="width: 50.6pt;"></td>
<td style="width: 50.6pt;"></td>
<td style="width: 50.6pt;"></td>
<td style="width: 50.6pt;"></td>
</tr>
<tr>
<td style="width: 99.1pt;">
Consented dwellings (#)
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Detached houses ('000s)
</td>
<td style="width: 50.6pt;">
21.1
</td>
<td style="width: 50.6pt;">
21.8
</td>
<td style="width: 50.6pt;">
21.7
</td>
<td style="width: 50.6pt;">
22.0
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Total ('000s)
</td>
<td style="width: 50.6pt;">
39.8
</td>
<td style="width: 50.6pt;">
37.9
</td>
<td style="width: 50.6pt;">
37.2
</td>
<td style="width: 50.6pt;">
36.4
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
yoy % chg
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Detached houses
</td>
<td style="width: 50.6pt;">
1.2%
</td>
<td style="width: 50.6pt;">
8.2%
</td>
<td style="width: 50.6pt;">
3.4%
</td>
<td style="width: 50.6pt;">
6.1%
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Total
</td>
<td style="width: 50.6pt;">
23.7%
</td>
<td style="width: 50.6pt;">
18.2%
</td>
<td style="width: 50.6pt;">
11.3%
</td>
<td style="width: 50.6pt;">
12.0%
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Total floor area
</td>
<td style="width: 50.6pt;">
13.5%
</td>
<td style="width: 50.6pt;">
10.4%
</td>
<td style="width: 50.6pt;">
4.8%
</td>
<td style="width: 50.6pt;">
5.4%
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Non-residential
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Total (NZ$m)
</td>
<td style="width: 50.6pt;">
618
</td>
<td style="width: 50.6pt;">
1,827
</td>
<td style="width: 50.6pt;">
3,833
</td>
<td style="width: 50.6pt;">
7,580
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
yoy % chg
</td>
<td style="width: 50.6pt;">
11.1%
</td>
<td style="width: 50.6pt;">
9.3%
</td>
<td style="width: 50.6pt;">
13.1%
</td>
<td style="width: 50.6pt;">
12.7%
</td>
</tr>
</tbody>
</table>
Source: Statistics NZ, Forsyth Barr analysis
<div class="content-highlight">
Investment View
Whilst NZ-building related stocks headline valuation multiples appear prima facie attractive relative to the broader market, in our view these fairly reflect elevated NZ construction activity and company-specific issues.
</div>
Matt Henry, CFA
<a target="_blank">matt.henry@forsythbarr.co.nz</a>
<a target="_blank">+64 9 368 0115</a>

Building Consents
NZ Consents — Treats, Not Tricks
There remains little to be scared of in building consents numbers. Residential has remained strong all year despite soft housing market activity (which appears it may be turning) and weaker industry sentiment. Non-residential may be easing, but with a healthy pipeline we anticipate any downturn will be modest. With interest rates at record lows and continued high migration we see little reason why construction activity will not remain elevated for the foreseeable future.
Headline residential number hits cyclical high
September consents of 39.8k (annualised) was the highest headline number since June 2004. The +7% mom/+24% yoy surge was largely driven by a big contribution from inherently variable apartments in Auckland and Wellington. Beneath this noise houses, -5% mom/+1% yoy, were the softest this year, but only by a touch. Overall floor area consented, the best measure of future construction activity, was up +13% yoy taking YTD to +7%.
Residential consents have been strong all year (despite relatively widespread concerns that the market may be softening). Strength has been geographically broad based including all NZ’s largest construction regions: past six months Auckland +11% yoy, Canterbury +12%, Waikato +13%, Wellington +8%, and Bay of Plenty +7% (which collectively account for c.80% of construction activity). The resilience in Auckland remains notable given softness earlier in the year and housing market challenges, highlighting mid-market demand is robust.
Non-residential potentially has peaked, but pipeline still healthy
September continues a string of softer months for non-residential consents, up +11% in value terms, but down -23% in floor area (sqm) taking the past four months to +6% yoy in value and -24% in sqm. When coupled with anecdotes of a thinning pipeline (largely in Auckland), we do suspect investment could soften medium-term. That said, we expect any downturn to be relatively modest. The pipeline is healthy, over the past 12 months value consented is up +13% and sqm +5%, with strong economic and population growth over recent history necessitating investment across most segments.
Figure 1. NZ building consents (September 2019)




&nbsp;


1 month


3 months


6 months


Annual






Residential








Consented dwellings (#)


&nbsp;


&nbsp;


&nbsp;


&nbsp;




Detached houses ('000s)


21.1


21.8


21.7


22.0




Total ('000s)


39.8


37.9


37.2


36.4




&nbsp;


&nbsp;


&nbsp;


&nbsp;


&nbsp;




yoy % chg


&nbsp;


&nbsp;


&nbsp;


&nbsp;




Detached houses


1.2%


8.2%


3.4%


6.1%




Total


23.7%


18.2%


11.3%


12.0%




Total floor area


13.5%


10.4%


4.8%


5.4%




&nbsp;


&nbsp;


&nbsp;


&nbsp;


&nbsp;




Non-residential


&nbsp;


&nbsp;


&nbsp;


&nbsp;




Total (NZ$m)


618


1,827


3,833


7,580




yoy % chg


11.1%


9.3%


13.1%


12.7%




Source: Statistics NZ, Forsyth Barr analysis

Investment View
Whilst NZ-building related stocks headline valuation multiples appear prima facie attractive relative to the broader market, in our view these fairly reflect elevated NZ construction activity and company-specific issues.

Matt Henry, CFA
matt.henry@forsythbarr.co.nz
+64 9 368 0115

Building Consents: NZ Consents — Treats, Not Tricks

Fletcher Building

Building Consents: NZ Consents — Treats, Not Tricks