- Developers are looking to future-proof their projects.
- Delivering higher quality has the long term benefit of creating a reputation for excellence.
- These additions can add millions to project costs, and months to build times.
In her fourth article for The Property Tribune, Fiona Yang, executive partner at Plus Agency, explores why some are going beyond what’s required and willing to accept the higher associated costs.
In Sydney, the benchmark for residential construction is set high, yet some developers are charting a course beyond the government-mandated standards. That often adds millions to their costs and months to their schedule, so what drives them?
I find that these developers have twin motivations: risk avoidance and long-term brand value.
Investment as risk mitigation
High-quality construction acts as a safeguard and pre-emptive strike against future liabilities. Investing in higher construction quality up front helps ensure they more than comply with government regulations and pass all their Building Commissioner inspections. It also helps the developer reduce the risk of having to deal with costly defects and maintenance in the future after they hand over the building to its new owners.
However, this kind of risk avoidance is expensive. Some enhancements, like electric car chargers and premium kitchen appliances, make an immediate boost to potential asking prices. The value of more foundational upgrades, like better-constructed basements, waterproofing, and soundproofing, often go unrecognized at the time of sale, so buyers may not be willing to pay more for them, especially when buying off the plan.
A case study in Sydney’s North Shore
Take “The Origin Killara,” a terrace house project under construction on Sydney’s Upper North Shore that has set new suburb price records.
Developer, Unifond Group, has given The Origin Killara a full double-brick structure, which is costlier but offers future residents many advantages, including high resale value, structural stability, lower maintenance costs, and better insulation against sound, weather, fire, and pests.
Unifond Group has also opened its wallet for double-glazed, sound-proof windows on the street-facing facades, which add as much as $1,700 per square meter to the budget. Underground, Unifond Group is building an expensive double-walled basement and mechanical ventilation system throughout the garage that costs tens of thousands more in extra materials, equipment, and labour.
Can buyers love a double-walled basement?
In all of my years in the real estate industry, I have never once seen a buyer fall in love with a double-walled basement the way they fall in love with a view or a kitchen. It’s unlikely that Unifond Group’s investments will pay off in higher sales prices to the same degree that more visible improvements would.
Yet, Unifond Group is not the only developer making this sort of unrewarding investment in quality. In the long run, they do expect to reap some benefits in the form of a reputation for excellence that will help them achieve faster sales and higher prices on future projects.
There are other examples, too, particularly in high-priced suburbs. While developing Village Lane Lindfield, Lumex Property Group spent more to provide brick construction throughout. Another expensive feature is the lateral windows with exterior stone cladding on the units that overlook the courtyard garden.
If eyes can’t see, wallets won’t open
Buyers might also refuse to pay more for other costly improvements at Village Lane Lindfield, such as high-grade soundproof glass in units facing the thoroughfare, and dual soundproofing in the winter gardens.
I will share one more example because it is a different sort of project in a very different location. Candice Rose Bay is a smaller, nine-unit project in Sydney’s East where the developer also invested far more than necessary.
No buyer will see it, but Candice Rose Bay has a tank basement system for subterranean waterproofing. It is as effective as what you would find protecting an Olympic swimming pool.
Hiding in every balcony is a three-layer waterproofing system that will prevent damage and leaks for decades into the future. Yet, because buyers cannot see this, nor the building’s unusually intensive fireproofing, the developer cannot put a price on them.
These are just three examples of developers who are investing more in construction quality than they can expect to earn back in the short term. They have decided to stake their future on their reputations for quality rather than on short-term profits.
