Has a Fatal Blow Been Dealt to Queensland's Residential Unit Developments?

In recent years, residential unit builders in Queensland have faced significant challenges. The sudden hit of Covid brought work restrictions and disruptions, worsened by shortages of available materials and contractors, all of which contributed to the escalating construction costs we still see today.

Traditionally, developers and funders mitigated risk by engaging in fixed-price building contracts. Yet, this model saw a surge in builders entering external administration, or being forced to exit the industry altogether.

From what we can see, the biggest impact of the ongoing Covid fallout has been felt among developers, as banks demand greater presale levels, reducing levels of available stock during the build. This hinders the projects’ ability to absorb increased building costs with further, higher-value unit sales, and obtain revaluations to secure additional financing. As a result, the projects are dead in the water before they can even begin.

The latest Government policy round of Best Practice Industry Conditions (BPIC) now seems to signify a potential shift towards a more administrative-involved approach. This however, in our view, threatens to further diminish the available contractor pool and may continue to drive up building costs. Compounded with slower-growing residential unit sale prices, compared to houses and townhouses, some projects in the GPS loan pipeline have been rapidly shelved due to the unviable cost increases as a result.

Of course, at GPS, our focus isn’t to critique, but to act in the best interests of our clients. Market curveballs in residential development are not new, however, they underscore the importance of adaptability and relationships. Having weathered the GFC & COVID-19 landscapes, plus more over the past thirty years, we understand the turbulence involved in our market.

As far as we’re concerned, the best solution lies in addressing supply and demand dynamics, rather than relying solely on external intervention. The present hurdle lies not in just aiming to sell completed units and forgoing presales, but in navigating construction and timing the most effective sales amidst residential market supply shortages.

For that reason, we are continuing to look at funding residential development projects, but with an even greater emphasis on Builder & Developer relationships, as we did during the peak of Covid. We see ourselves as being part of your development team, it’s a benefit we’ve always carried of being a private lender.

This is why we’ve recently opened our books for the coming year to engage in candid conversations with builders and developers who hit our project markers. Whether you’re ready to seek finance or are in need of an introduction to the right builder for your team, starting the conversation with us means that when your projects do make it over the line, you’re not stuck in the woods suddenly seeking finance or construction labour, because collaboration is the key to optimising outcomes.

So, if you have a residential project brewing that: