Market Update by Lowe Design & Build

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Knowing when to wait and when to act on your development journey can be difficult to gauge; especially when you throw a global pandemic into the mix. There are so many varying articles and opinions, so let’s cut through the white noise and look at what we know for sure:

Throughout 2020 - 2022 we experienced a “perfect storm” in the construction industry which was driven by the following factors;

  • The Government Construction incentive program which launched in 2020.
  • COVID and the travel limitations, shifting people’s focus from family holidays to their family home.
  • Increasing Real Estate values – property values rose 28.6% between 2020 and 2022.
  • Record low interest rates.

This led to a dramatic increase in demand for residential and commercial projects. Coupled with the unrest in Europe, Australia experienced:

  • Restricted access to overseas materials.
  • Increased shipping costs.
  • Local material shortages.
  • Labor shortages due to increased demand and COVID immigration restrictions.

The contributing factors initiated an unprecedented surge in construction costs across the industry, particularly through 2022.

So that is where we’ve been, but where are we now?

In monitoring and understanding the drivers behind building costs, here’s what we’ve observed:

  1. In Australia, new dwelling approvals have reached a 10-year low. After peaking at 23,237 in 2021, they have now halved to 12,661 in February this year. This will create a more competitive environment for trades and suppliers throughout the industry.
  2. Timber and steel costs are returning to pre-pandemic levels.
  3. Other key materials which were in massive undersupply through 2021 and 2022, are normalising.
  4. Our skilled migrant intake has resumed and is rebounding fast; we are set to grow by 40,000 people each year.
  5. Shipping costs fell dramatically through 2022 and are expected to fall further -
Shipping costs ($US'000) (1)

These factors are compelling indicators that construction costs will continue to ease in the coming months.

 

With price pressures easing, it’s a good time to make use of O.P.E. – other people’s experience.

What strategy do experienced developers use, and why?

In short, they position themselves, so they remain in control of the timing of their project. By completing the necessary documentation, they can then choose when to build, and when to sell. Developers are often ‘first on the field’ and ahead of others, as they ready themselves to catch the next Real Estate uplift when the overall viability of the project is at its strongest.

But what if costs continue to ease, over the next few months?

The Lowe Design & Build model ensures that our clients receive current market pricing, with multiple price updates and presentations prior contract. This means, working with our clients, we can manage their costs closely and they remain well informed. Here’s how the timeline works:

NB | If building a single home, town planning does not apply.

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Finally, are you wondering what will happen to the Melbourne property market in 2023?

Well after falling for some months, CoreLogic reported that the trend flattened in February 2023, rose 0.6% in March and a further 0.5% in April. Short term trends are fun to chat about over coffee, but the long-term patterns are undeniably upwards. For more detail on the past 30 years of housing values, click here.

 

So in relation to Real Estate values, we are safe in saying that what’s gone down will soon go up. Inversely, we are entering a highly fertile ‘after the storm’ market as construction costs continue to ease. Rather than positioning your project on where we’ve been, take a long-term view and focus on where we’re going; if the time is right for you, this is the ideal opportunity to make a start on your project.

With over 40 years’ experience, Lowe Design & Build continues to support Bayside landowners on their development journeys, with newly completed projects open to view, every few weeks.

To claim your complimentary site assessment or to attend our next viewing opportunity, please register your interest with Daniela on daniela.schell@lowedesignbuild.com.au or on 0413 687 533.

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