What Happens Now?
2010 will prove to be if nothing else, a year that promises hope for the development industry as many can’t imagine two consecutive years like 2009. Certainly the optimism in 2010 is far greater than that experienced at the same time last year, however international uncertainty surrounding Europe’s capacity to service its debt recently loomed as the major headline across most Australian newspapers. With this, the stockmarket has fallen by more than 10% and reminded us that the depth of the GFC will not allow for a steep rebound, but a more protracted and steady recovery.
So what does 2010 really offer the development industry? Whilst many pundits are using the term “opportunity”, the reality is that opportunity is only going to come to those prepared to innovate. 2010 is perhaps the year that we should be steadying the ship and building a solid platform from which industry best practice that occurred prior to the GFC is again improved upon. Those projects that have led the way in past have mostly benefited from improved sales rates and increased marketshare.
The reason to looking forward to innovation in 2010 is my recent travel undertaken throughout Australia. Without meaning to be condescending, I am a little concerned that our planning policy and outcomes in an urban environment are all starting to become a little bland and a very much alike. Gladstone’s residential subdivisions look like those on the Sunshine Coast, like those in Mackay, Townsville and Cairns and surprisingly very similar to those in Adelaide and Melbourne. The challenge for 2010 will be to lift the bar and start to get a little more creative. We need to challenge the common held beliefs that have existed about the market for the past decade.
2010 is going to be another year that challenges the concept and definition of what affordability is. There is no doubt that with little if any correction in most residential markets, first home buyers will again be at the bottom of the food chain. One thing I can guarantee is that without the release of new broadhectare parcels into the market, the level of competition will only get narrower. Less competition simply means higher prices. Look at what happened when Virgin entered the airline industry in Australia, domestic airfares have never been cheaper. The same can be said about mobile phone packages, internet etc. Where there is healthy competition, the consumer benefits. With the restriction of new land entering the market, consumers are not going to get the best deal. The reality and result of constraining land is that it continues to drive up the raw broadhectare land values making it difficult for the development community to provide housing product which is suitable for families on modest budgets. Where the western corridor once provided affordable land on large lots at a reasonable price, this may well be a thing of the past. At present, it is difficult to think of any one corridor which has the capacity to service the needs of families on modest budgets in SEQ who aspire to home ownership. This problem is going to be exacerbated in 2010.
Finance and the availability of such at realistic margins will again be a yolk around the development industries neck in 2010. The attrition of mezzanine funders over the past 24 months has taken a very important tier out of the options available to mid to small sized developers. These are the same businesses that have proven to be the best suited to infill developments that are either two small for the bigger players, or of less interest because the profitability is generally not as high. Without these mid tier businesses using innovative finance strategies, many good projects will remain on the shelf. Density targets will struggle to be met.
But 2010 should, and will be a year that has the potential to be a defining moment for the years ahead. It will be a year that we do things smarter, challenge some of the norms and potentially make headway on those projects that have been bogged down in a bureaucratic red tape. It will also be a year where a valuer’s interpretation of the market will be more critical to the viability of those projects that need finance…which means almost all of them.
And finally, it will be a year that sees the REIT sector rebound in addition to those funds that have been stashed away in superannuation trusts now looking hard for new investments. And whilst National Property Research does not see 2010 as a boom year, it certainly sees it as 12 months of continued consolidation where hopefully new innovation will again “wow” the consumers.