September 7, 2022 - Article

WHEN IS THE RIGHT TIME TO START YOUR DEVELOPMENT JOURNEY?

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When the media starts using words like “falling”, “tumbling” and “plummeting” to describe Melbourne property values, the question “Is this the right time for me to develop?” is completely understandable. This article aims to provide some insights into market behaviour and some relevant facts for people thinking about the timing of their development plans.

 

Now having been in business for 40 years, Lowe Design & Build has first-hand experience of many property market cycles. And this is one of the first important points that we all know but need to keep at the front of our minds – the market has cycles, or patterns. Experts, analysts and commentators generally agree that these cycles last between 5 and 10 years. For example, the Commonwealth Bank commentary is that “Historically, cycles have tended to last about eight years – two years of strong activity and rising prices, followed by five or six years when not as much happens.

 

Recently we have seen strong growth in property prices, so what should we expect now? Typically, there will be a period of “adjustment” where prices drop a little or not very much happens.  Interestingly, analysis over the past 30 years indicates that periods of increasing prices usually last more than 3 times longer than declining or stable periods, and when markets decline they only lose a fraction of the previous gains made.[1]

[1] Domain Property 2022

Source: ABS 6416.0 Residential Property Price Indexes

Melbourne house price graph

The second point to remember is that the Melbourne market is not just one market – it is a combination of many micro-markets which vary considerably. Cycles and patterns differ depending on the area, price point, and even the property type.

 

The “first home /new mortgage” suburbs behave very differently from more established suburbs where people are usually much further along their property ownership journey. Consider this example which shows the growth in median sold house prices over the past 12 months, as reported by realestate.com.au in August 2022 -

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In this example, Beaumaris prices have risen by an average of nearly 19% in the last 12 months. If this information was used to set a sale price in Cranbourne South, where prices have actually fallen 4.5% over the same period, results would likely be very disappointing.

 

So, what else needs to be considered when thinking about the timing of developing a property? It is very important to know the timing of the property development process. The Development timeline is very different from the simple Sell and Buy timeline. Let’s say that you made the decision today to develop your existing property, and you came to see us to get the ball rolling. By the time concept drawings are complete and Town Planning approval is through, at least 9 months will have passed. The Town Planning permit does not have to be actioned for 2 years, and this can usually be extended by a further 2 years, providing a potential window of 4 years. Building plans typically take 6-8 months, with construction a further 12 months, meaning the whole timeline can be anywhere between 27 months and 6 years!

Options during the development process. (3)

So it is the times when the market is cooling or stable that many experienced developers often make their move. There is no rush and they have time to create themselves options, unlike during periods of rapidly rising, heated markets where costs are unpredictable and there are more pressures.

 

Let’s review what we have covered. Firstly, property markets always move in cycles of growth – peak – adjustment – stabilisation - growth. Periods of growth are usually a lot longer than periods of adjustment and stabilisation.

 

Secondly, not all markets behave the same. More granular, local conditions should be considered as much or more than city, state or national trends.

 

Thirdly, the development timeline is much longer than the buy/sell timeline. Development is less pressured when it is underway during the market adjustment and stabilisation phases of the property market cycle.

 

Lastly, there are many option points during the development process to pause, cash out or partner up to share costs, providing comfort that it does not ever have to be one big scary decision.

 

When all of these considerations and option points are understood, the decision to commence the development process is really not as nerve-racking as many people think. And our experience of working with thousands of clients on their developments is that action really does cure fear. Once you start discussing the options and getting reliable information that is specific to your property and your circumstances, the clouds clear and the way forward seems a lot more achievable. Why don’t we just start with a chat about possibilities!

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