This article is from the Australian Property Journal archive
CONSTRUCTION costs are the number one handbrake on new projects for Australia’s developers, eclipsing planning, site cost and high interest rates.
According to the Centuria Bass 2024 Australian Property Development and Finance Index, while construction costs continue to weigh on developers, 70% of survey respondents believe their project volumes will increase over the coming two years.
“Within the residential sector, in particular, there has been considerable debate at the Federal and State parliamentary levels about reducing planning red tape to address the housing crisis,” said Nick Goh, joint CEO at Centuria Bass.
“However, listening to our borrowers, 47% said construction costs are their number one development challenge.”
Respondents identified residential and industrial markets as the greatest sectors for development opportunities over the coming five years.
37% of those surveyed named Transport Oriented Developments as the biggest residential opportunity, followed by subdivisions at 28% and luxury apartments at 22%.
“It seems that for project feasibilities to stack up, economies of scale need to be created through more density in areas of high demand provided this doesn’t translate into higher land costs,” added Goh.
“So it does seem appropriate that more planning departments are focused on Transport Oriented Developments (TOD), which create more density in locations that support commutable communities and centralised infrastructure.”
Survey participants were split on the future of construction conditions, with 41% feeling positive and 35% expecting further deterioration.
In terms of loans, 95% of respondents ranking construction finance as their most common loan type over the past two years, followed by investment loans, then an equally to residual stock and bridging loans.
With 72% saying their loans were sourced through non-bank lenders, which is a major increase over the last five years, with 69% saying their projects typically had multiple sources of funding and that the typical loan size was between $10.1 million and $20 million.
