The recent discourse I’ve read surrounding residential development in South East Queensland (mainly through the media and competitor newsletters) paints a rather bleak picture, to be frank.
However, time and experience has taught me to look beyond negativity and assess the bigger picture. While new project development has undoubtedly become more challenging and expensive, it certainly has not stopped. The focus has simply shifted towards fostering stronger relationships to set projects in motion.
The so-often referenced “housing shortage” can be viewed as having positive potential, in my opinion, for several reasons:
Policy Momentum: The persistence of the media seems to have finally gotten through to politicians, prompting them to take action. The Brisbane City Council’s recent relaxation of car parking ratios is a case in point. However, it’s important to remember that any government initiatives will take time to have notable impact.
Immigration Influx: Australia’s reliance on immigration persists, with only the quantity of intake debated between political parties. I can already see this ongoing influx extending the period of undersupply in the market.
Unit Price Potential: While unit prices haven’t increased at the same pace as houses and townhouses over recent times, my experience suggests they will eventually catch up. In the growing population we are also seeing, the supply constraint trumps all else, meaning unit values will eventually rise and follow suit.
Builder Bottleneck: Shortages of labor in the construction industry have already contributed to the length and depth of the undersupply situation.Alongside this, Government infrastructure projects, such as the Brisbane Olympics, and the CFMEU Tax are further straining builder availability.
All in all, I see positive spin on this market as one where “if you can build it, sales will come.” The challenge lies in getting it built, and that’s where experience comes into play.
In an undersupplied market, the traditional bank funding model of strong pre-sale requirements is, ironically, far riskier. While bank loans may offer lower interest rates, they limit a developer’s ability to capitalise on a rising market through post-construction sales. When 60% of your stock is pre-sold at yesterday’s prices to meet bank debt coverage requirements, you’re left with only 40% of your stock to benefit from value uplift covering any cost escalations.
This is why GPS favours an ‘opportunity cost’ approach when considering projects, where sales are made alongside construction progress to maintain margin. This way, you’re selling at locked-in building prices and are able to take advantage of each unit stock’s rising value as it’s completed. This opportunity sales process also provides flexibility in case of cost increases. Your project can be revalued based on achieved sales price growth, allowing for an increase in the loan amount within the agreed LVR.
All of these factors mean that builders are in demand and they can afford to be selective on which projects they undertake. It is in these environments that fostering strong relationships becomes paramount. Whilst the developer-builder connection is crucial, the role of the financier is equally important as a member of the delivery team. Builders are, and can afford to be, more risk averse. They are seeking the assurance of readily available finances and timely progress payments. A reliable financier can also be a valuable partner in problem-solving throughout the project lifecycle.
This is where the immense value of a direct relationship with a financier like GPS shines. The benefit of builders and developers being able to engage in ‘face to face’ discussions with the decision makers is invaluable. At GPS, we believe in the power of direct developer and builder relationships to build trust and work collaboratively towards delivering a successful project. Working seamlessly without any middleman not only streamlines the process for both parties, but also fosters stronger, longer-lasting relationships.
For GPS, our 30+ year business is built on the foundation of relationships and being part of your development team where needed. We look forward to further strengthening our existing relationships, fostering new partnerships, and adding value to residential development projects in SEQ now and into the future.
If you want to be able to have “face to face” conversations with the decision maker to make a deal work, then our team is for you. You can keep costs down by talking to us directly and seeing how we can help:
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