Most new apartment developments are aimed at affluent Baby Boomers looking to downsize who are willing to pay top dollar. Dickerson warned that until construction costs and labour issues improved, the outlook for increasing housing supply remained grim.
On the ASX, the mining sector has the lion’s share of zombie companies listed on the index, largely due to plummeting nickel and lithium prices.
“Stubborn inflation, sustained high interest rates and low consumer sentiment have left businesses with little breathing room to keep themselves solvent. These factors are simultaneously biting into profit margins and increasing debt burdens [turning] once stable businesses into zombies,” Dickerson said.
“In prior years, the increase in zombie companies was largely due to the removal of COVID stimulus, which had propped up many businesses. Now, insolvency appointments are 50 per cent higher than pre-COVID levels, which is a symptom of more challenging market conditions.”
The federal government’s safe harbour legislation presents companies with a chance at revival. The legislation introduced in 2017 gives companies in financial distress “breathing space” to turn around their business without the risk of personal liability.
Companies are not required to disclose whether they are operating in a safe harbour environment, which allows them to discreetly look through options that may lead to a better outcome than insolvency.
Dickerson said it was likely that companies in the zombie-zone may be using the safe harbour provisions and were not completely destined for the graveyard.
“The taming of inflation and the subsequent lowering of interest rates by the RBA, which we anticipate by February next year, will be the best cure of zombification,” she said.
“It does take time for the effects of interest rate drops to filter through the economy, but for businesses struggling, there are still a raft of options available like safe harbour laws and private credit that simply didn’t exist in previous downturns.”
Some sectors, with stronger underlying market conditions, remain zombie-free. These include aerospace and defence, agriculture, real estate trusts, manufacturing and utilities, all of which have not recorded a zombie company in the past six months.
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