Supply will underpin profits

The good thing about being in the property development industry is that there are two primary forces you need to watch carefully – supply and demand. Of course there are sudden shocks and unforeseen forces at play in any marketplace but it should be relatively easy to determine whether your next property development project is going to be profitable.

In terms of the domestic residential market in Australia right now, the indicators remain incredibly healthy, considering the complication of the COVID-pandemic, and the reasons for that can be boiled down to, you guessed it, supply and demand.

One major bank has predicted a spike in median housing prices of 16 per cent during 2021-22 which is remarkable when you think about the number of businesses that have been negatively impacted by ongoing lockdowns, limits on trade and economic uncertainty. The simple fact of the matter is that housing supply cannot keep pace with demand and that means it is a great time for property development.

CoreLogic data indicates that the change in dwelling values across capital cities has ranged from over 10 per cent for the biggest hardest-effected hit Melbourne up to 23.4 per cent for Darwin. Most of the major banks are falling in line in predicting more growth to come in the residential market as lockdowns ease and vaccination rates climb.

As housing prices rise, first home buyers and investors are going to need to change their expectations and that should result in their attraction to high- and medium-density properties as their point of entry to the market.

Finding the right location and securing the best possible land is always an important key to success. As planning rules are streamlined it is likely that regions which would not have been attractive for development will, over the next two- to five-years open up. This is particularly true of the Hunter Valley and Shoalhaven Coasts in NSW, for instance. Younger investors and first-time buyers who would not have considered anything other than a city address pre-pandemic are likely to be attracted to less dense areas.

This gives developers the potential to create an ‘exclusive’ sale story for a much lower outlay, right through from the initial value of the greenfield to the features and finishes. Investors and first-time buyers will be attracted to the narrative of a distinguished address somewhere picturesque with the right features. You can keep your costs low, reduce your risk and increase your profit margin.

Markets have slowed through July and August but as we get closer to the National Cabinet and state premiers forging our national pathway to ending lockdowns and moving on, we can expect solid residential property price growth in the years ahead.

According to the measures of supply and demand, residential property development will continue to deliver a good return through to at least 2024. Of course, another way to improve your profit margin is to find the right finance and that’s where we come in at Acuity Funding. We are a leading commercial broker with over 35 years in the industry. We understand the needs of property developers and we have some unique products that can further enhance the profitability of your projects. Call 02 9489 0609 or email [email protected] for more information.