Tread carefully in the coming months when planning your property development or if you are a supplier in the building construction industry
Property development is rewarding except in times of uncertainty. Unfortunately, we are now facing one of those uncertain times. The last two years of working through Covid and lockdowns are impacting the construction industry. We are now seeing significant building players over the last few months into liquidation or closing. This indicates that it is the start of what may well be a tough few years ahead.
Many of our clients are commenting on what they feel is happening out there:
Supply of materials and labour availability
Builders are commenting on how the price of materials is increasing. Some have reported that more price rises are on the way. Others say that it’s not only wood it’s also other raw materials etc that are unavailable or prices have rapidly risen. Coupled with this is a lack of labour, higher prices demanded by workers and the labour drain towards the Government infrastructure projects are impacting works being completed on time.
Committing to building contracts
Customers are requesting fixed quotes for their new houses or developments. As a builder, be careful locking in a contract without a contingency. Otherwise, this may leave you with no or negative margin. This equally applies if you are building for development. Some builders advise clients that they will invoke and increase the contract if prices rise, and others are doing cost plus. Some are just not taking on new customers and waiting it out. Residential customers are getting cranky and frustrated as delays often occur well beyond the builder’s control. Worst still, if you did manage to sign what you considered a reasonably priced contract, make sure your builder will see it through and doesn’t default part way through.
There are customers out there that are cashed up. During covid, they managed to save and now want their building proh]ject has done. There is also lots of old money surfacing from inheritances, fueling demand for builders. But they are disappointed as they find delays beyond what they would like or quotes that are well out of the ball park of what was once expected.
The intelligent property developers are holding off as the market is highly overheated. Prices paid for old houses and potential development sites can impact the profit potential. Those still keen to develop are looking at regional or outer Melbourne until prices stabilise.
First home loan Grants and other Governments subsidies help the economy
These have helped stimulate the construction industry. However, these are slowly being rewound, impacting consumer spending. Coupled with interest rate increases and availability of money will impact greatly over the next two years. Banks are already starting to tighten lending criteria for builders and developers. Associated with the ATO ramping up tax debt recovery and audit, this will affect as we see more builders being forced into liquidation. ATO tax planning and debt management will again come to the forefront of the construction industry!
Be strong, plan and look for the pot holes
If you are contemplating development or operating in the construction industry, plan for contingencies. There is a lack of supply and labour, and the predictions are that the next 2 years ahead will be tough. Take care of yourself, and your business and come out the other side with a stronger business. Reach out if you think the road ahead looks too rocky to conquer.