Weathering the Storm: Thriving as a Property Developer in Uncertain Times

Introduction

The Australian property development market has been experiencing a challenging period due to a combination of factors, including high interest rates, negative media coverage on builder collapses, and rising build and trade costs. However, as a small-scale property developer, it is important to recognise that even in challenging times, there are opportunities to be found. By understanding and navigating these challenges, you can position your business to emerge stronger and more competitive in the long run. In this blog post, we'll discuss how to deal with the current environment and the competitive advantages that can be gained, particularly in light of massive immigration and its impact on the sale of completed properties.

High Interest Rate Environment

The current high-interest rate environment has the potential to deter some investors and buyers from entering the property market. However, there are several strategies that small-scale developers can employ to navigate this situation:

1. Focus on cost control and efficiency: Streamlining your processes and reducing costs can help to offset higher interest payments. This may involve renegotiating contracts, optimising construction schedules, and adopting new technologies to improve productivity.

2. Target long-term growth areas: Despite the challenges of high interest rates, there are still areas with strong long-term growth potential. By focusing on these regions, developers can position themselves to capitalise on future demand and price appreciation.

Negative Media on Builder Collapses

The Australian media has been reporting extensively on builder collapses, which can contribute to a lack of confidence in the industry. To address this, developers should:

1. Emphasise transparency and communication: Providing regular updates and clear information on your projects will help to build trust with clients and investors.

2. Partner with reputable builders: By aligning yourself with experienced and well-regarded builders, you can mitigate the risk of construction issues and project delays.

Rising Build and Trade Costs

Rising construction and trade costs can put a strain on developers' budgets, but there are ways to manage these increases:

1. Incorporate sustainable and energy-efficient practices: By adopting green building techniques, developers can reduce ongoing costs and appeal to environmentally conscious buyers.

2. Use innovative construction methods: Exploring alternative construction techniques, such as modular or prefabricated building systems, can potentially help to reduce costs and expedite the construction process.

Competitive Advantage in Tough Times

Despite the challenging environment, small-scale developers can gain a competitive edge by demonstrating resilience and adaptability. As massive immigration continues to drive demand for housing, developers who successfully navigate these challenges will be well-positioned to benefit when it comes to selling completed properties. This can be achieved by:

1. Focusing on niche markets: Catering to the specific needs of the growing immigrant population, such as multigenerational housing or culturally sensitive design, can create a unique selling proposition.

2. Offering flexible financing options: By providing tailored financing solutions, developers can attract a broader range of buyers and help mitigate the impact of high interest rates.

Conclusion

While the current Australian property development landscape presents challenges, it also provides opportunities for small-scale developers to build resilience and gain a competitive advantage. By understanding and addressing the factors driving the market, developers can position themselves for success in the long term, benefiting from the ongoing demand created by massive immigration. As the market stabilises and buyers' confidence returns, those who have navigated the tough times will be well-placed to reap the rewards.

Hot or Not? How to identify a hot market

Market movements and what you’re noticing.

Seeing things through a straw if what we do as we live our lives. This is no different if we are to look at property development through the eyes of the individual developer. But what other perspective do we have other than that of an individual reporter in on a scene, or an experience of a human being in a situation. This philosophical discussion would probably fill an entire article on its own and perhaps preserved for separate occasion.

What I wanted to share was some knowledge of the happenings on the ground, particularly in and around Adelaide. There are a bunch of fundamental changes that are occurring, again probably for another blog post, including lending criteria, amount of money put into the economy including stimulus, general market shift, however, what is actually happening right now is worth discussion.

What To look out for when attitude change, which lead to a market change.

Have you noticed the following in your market?

• When agents don’t return calls on enquiries

• When the properties you’re looking at mostly are going to auction, rather than via private sale

• Price - when properties sell for a significant amount over what you’re prepared to pay (hence eroding margin)

• Town planners - when these guys become really really busy

• When agents tell you they are having trouble getting stock

• When agents tell you that properties are selling like hot cakes

• When the attitude of the banks / news reports / the general economy change

What’s happening specifically in the Adelaide market? All of the above!

What does this mean for you as an investor, potentially wanting to get into the market. Your strategy needs to change. I remember looking at the Sydney market around 5 years ago, and the exact same thing was happening there - the market was running hot! deals were being sold for 5% , even 10% above expectations and the best developments deals yielded a return of 0%, ie no profit. That’s how we ended up looking at the Adelaide market.

In another note, in Adelaide, the rental market is running extremely hot as well, driving up further price changes, as rentals become harder to get into, and people, particularly first home buyers enter the market instead thinking well, I’m paying no more than rent at the moment, and we can own our place rather than rent!

The question is will this last forever, the answer, is probably that it will cool, but when this will occur is anyone’s guess - will it be at the end of HomeBuilder grant, or will this be the beginning of a boom in Adelaide we haven’t see for a while, remains to be seen. One thing is clear, the market is running hot, and for investors, it means competition is increasing, and as such it’s becoming harder to get even a good deal. Best to start looking elsewhere, rather than overpay betting on a rise on the end sales values as well. Watch this space!

BIS Oxford Economics Residential Property Prospects 2019 to 2022

Leading economics consultants BIS Oxford Economics predicts that the big movers are Brisbane, Adelaide and Canberra in the coming years. See the overview of the report here for further information.

https://www.propertyobserver.com.au/finding/location/sa/101351-adelaide-expected-to-see-stronger-house-price-growth-bis-oxford-economics-3.html

The concept of compounding interest in property development

Many say that property development is a team sport. There are a huge number of team members who add value to the project. Some are obvious, like architects, real estate agents, and structural engineers, others are less seen or work behind the scenes, such as 3D graphic designers, colour consultants, or landscape architects. One things is for certain, that it’s next to impossible to complete a whole project on your own. You must leverage the skills, resources, knowledge of others.

One article I came across recently by a US-based tech entrepreneur Naval Ravikant describes this concept of a team, and that in order to be successful (and reap the benefits) long-term, you play multiple iterated games. And it’s this idea of repeating the process, with the same players, whether it’s capital or relationships, you start to get the effects of compounding.

For example, capital returns of 8% per year may not sound much, but re-iterated over 9 years, giving you a return of 100% or the equivalent of double your money. That’s right, double. Similarly you can think about relationships in the same way, the first time you do business together, there’s uncertainty, not knowing how each person operates, and their distinct quirks. Over time, the dealings become easier, almost frictionless, and then the ability to tackle bigger problems (and deals) becomes a reality.

Check out the post on tech start-ups, and I think can be easily applied to property development and investment.

https://nav.al/long-term

QBE Releases Housing Outlook for 2018-2021

Australia hit a major milestone this year when our population reached 25 million. Natural population growth and international migration combined to achieve this milestone quicker than most forecasters predicted. And, of course, everybody needs somewhere to live.

Courtesy of QBE, Australian Housing Outlook 2018-2021 attached below for review. This is the 17th year they’ve partnered with BIS Oxford Economics on a deep analysis of Australia’s residential housing market and its three-year outlook.

QBE Housing Report 2018-21

CLICK HERE TO DOWNLOAD

Accessed 7th Nov 2018 here - https://www.qbe.com/lmi/news/reports/housing-outlook

World's Tallest Student-Only Accommodation Tower Enters Planning

Developer Hines Property has lodged plans for a new $85 million tower in Adelaide’s CBD that would become the tallest purpose-built student-only accommodation building in the world.

The 38-storey Woods Bagot designed tower, located at 29 Twin Street, would stand 124.2 metres tall should the application be approved.

The world’s current tallest student accommodation tower standing 122 metres high, also calls Australia home, known as One Wharf Street Tower located in Brisbane.

29 Twin St Adelaide

Managing director James Hines says the building is a response to significant demand in the PBSA sector thanks to the nation’s swelling numbers of interstate and international students.

“There are already over 10,000 international and interstate students enrolled at the city-based universities and they provide a significant economic benefit to the state,” Hines said.

“This development will undoubtedly be the drawcard accommodation option for students considering Adelaide.”

The growing Student Accommodation sector: Scape's capital raise this year means its platform has grown to more than $1 billion in equity commitments.

The growing Student Accommodation sector: Scape's capital raise this year means its platform has grown to more than $1 billion in equity commitments.

Australia is the third-largest market for international students, behind USA and Britain, attracting significant investor interest to the PBSA market.

Earlier this year student accommodation developer Scape secured financial backing of $1 billion for its student accommodation fund, enabling Scape to drive a project pipeline with a gross development value of more than $3 billion in the flourishing PBSA sector.

The Adelaide tower will comprise a total of 510 beds and include a range of single studio rooms through to five and six-bedroom apartments.

Associate principal at Woods Bagot Alex Hall said the development site presented an opportunity for the team to create a simple singular design for a slender tower.

“A three-level lobby void will respect and respond to the adjoining Gays Arcade while creating a transparent, somewhat floating podium for the tower,” Hall said.

The development will also include a cafe, a communal mezzanine lounge, cinema and events space, study and dining area, garden retreat and rooftop lawn, gym, wellness and yoga space with views of the city and Adelaide Hills.

Construction of the project is expected to begin in 2019 and take 18 months to complete.

Originally published in Urban Developer, 27/09/2018 accessed 22/10/2018 https://theurbandeveloper.com/articles/worlds-tallest-student-only-accommodation-tower