Building Approvals Tumble

Hi everyone,

I have to say now will probably be the best opportunity to get in and develop. Interest rates are reasonably low, prices are flat-ish and doing small developments that don't require pre-sales will be a great way to manufacture profit. In a couple of years these dwellings will command a premium because they are new and because the demand will keep increasing. Just my opinion.

Thanks to Steve and the team for putting together these updates!

D

Dwofle

Agree and thats what we are doing.

Mind you finding it a bit sluggish moving a 6 pack development we just finished at the moment……..
 
The joys.

Beedie, where is your 6 pack? Just out of curiosity..

D

Moorooka Brisbane

Presales.

Do you mean property developments that are sold on to the public before they are built?

Hi Marie123,

You're back, how is your deal going?

Yep pre-sales as far as selling off the plan before construction. Generally on a 3 unit site you don't need to have pre-sales (nice to have though) for the bank to give you construction finance. So these are a bit easier to get finished and sold in a reasonable amount of time.

In Melbourne in particular because the prices on everything went up so much in such a short amount of time these small deals lacked a decent profit. Now that the market has flattened a bit should be some decent deals to be had. Probably lots of good bits of land in WA but not on the ground there

D

Hi guys,

The point I am trying to make is that a developer with pre-sales will find the going smoother. That is s/he will be able to get finance and there is relatively little risk provide they know what they're doing.

On the other hand, speculating is going ahead with a development without finance or pre-sales. This is done in better markets because there is extra return.

What I'm saying is that:

a) When the market turns there will be comparatively fewer new developments coming on to the market that have not been presold, because by its nature, fewer are started earlier when times were tougher.

b) Because demand will exceed supply at that time (when the market improves), prices will be set to jump up rather than float up.

c) Once price moves, developers will be happy to take extra risk and so 18 or so months later, more supply hits the market.

So, the question we should be asking is… what was the market like 18 months ago. The answer is… coming into the GFC when finance dried up. Therefore, we do not have a supply glut coming on because it has been difficult to finance developments without presales since late 2008.

– Steve

Thanks for the clarification Steve!

Do you think, particularly in Melbourne that more residential projects have been started due to the spurt in growth we saw at the start of the year? And that there will be a few more "speculators" who get into the market at the top?

I guess I never saw a three unit development as speculating due to not having pre-sales, I wonder if the banks will be changing their policy in the future to mitigate this risk.

And sorry Marie123 I didn't realise the question was directed at Steve (BIG Whoops)

Honestly I have about six billion questions I could put here now……..

D

……..Understood………………….

Amidst all this have BA coming out next few weeks on 5 apartments and keeping house on front due to demolition control but cutting it off on its own lot.  Property inner Brisbane ( Greenslopes) and  apartments and house all have city views.
 
Construction start planned March next year to be on market approx. this time next year…. so the speculation goes….

With the Brisbane market the way it is and even that my head is now shinier then Steve's..lol…… it still aren’t working as a crystal ball….

Any thoughts on my timing?

Hi Beedie,

I know how you feel. I've got our current one which is 12 apts on the boil. It is a two and half year project. Whip out the crystal ball.

Guess the supply and demand sentence really sums it up. If you have a product that has a limited supply you will have what everyone wants. I've been watching the prices slowing where I am, slowing but not falling. Outer eastern Melbourne suburbs just seem to keep going up, part of the fun of a ripple….

I think Steve's comments are the closest we will get to the crystal ball. He's been on the money with most of the predictions. I know a lot of people are predicting crashes and whatever but from everything I read and all the property I am looking at, it just seems a bit fanciful.

Bring on the market update.

D