- Builders and developers set to hemorrhage more money this year, experts said.
- Lower house prices and fewer sales could be the nail in the coffin for some.
- These unfavourable conditions add to the turmoil created by Covid19.
The building and construction industry is facing even tougher conditions with lower property prices, declining transaction volumes and rising costs setting the stage for a “difficult” 12 months according to an expert.
RSM Australia’s national director of property and construction Adam Crowley said after a number of years of reasonable market conditions, 2023 is shaping up as a year that could see both builders and developers start to lose money.
“When the property market is good and construction is flowing, in the past several years most developers have been able to make money,” Mr Crowley said.
“They might have seen costs increasing at the margins, but they’ve still been able to profit in a rising market.
“When prices fall the tide goes out and we see who is wearing swim trunks.
“Those who don’t have robust practices and systems may find it difficult to get through 2023 and 2024.
“They need to be astute, strategic and robust to deal with the current market” he said.
Mr Crowley said 2022 was a challenging year in construction, with weather issues compounding everything else the sector was facing.
“Construction firms have faced issue after issue: from Covid impacting on-site work, to supply chain delays, increased materials costs and shortages due to a lack of labour,” he said.
“While Covid is having less of an impact, these other issues of costs and delays have been compounded by weather and so a large amount of uncertainty remains.
“Even for those few in the industry who had successfully met the other challenges, they can’t protect against weather and not being able to get on site due to rain” Crowley said.
According to Mr Crowley, rising construction costs will mean some developers might hold back on undertaking large-scale builds this year.
“There is uncertainty in the sector,” he said.
“Many are sitting on the sidelines and are not active now, riding out to see what happens with interest rates and the broader economic climate.
“This further compounds housing supply issues.
“However, those with resources will try to pick up bargains when it comes to land to develop or under-priced distressed assets.
“There are opportunities for smart buying.”
Development opportunities ahead
According to Mr Crowley, some developers have so far been holding off on making new acquisitions.
“Those with existing pipelines continued their projects, and there are plenty of development opportunities on the market, but many have been pessimistic and risk averse,” he said.
“We’ve seen more strategic buying, with buyers being very selective.
“I believe this will continue in 2023.”
Mr Crowley said he expects things will get worse before they get better for the sector: “This will put even more demand on housing supply – and if we see, as expected, a delay of up to 12 months for acquisitions there will be a continued supply crunch of new houses and residential apartments, and those built off the plan.
“Housing affordability is a national government priority, but the current crisis will be further compounded if development companies go under, so I would like to see the government think laterally about how to proactively avoid this” he said.
Mr Crowley said, to avoid having new builds delayed because of insolvencies, he’d like to see governments try to help deliver on projects that have been started rather than let these businesses fail.
“Government action may be required to support a sector that’s copped a significant hiding,
“This could be in the form of financial support or assistance to avoid the administration process of deferring debts to allow them to trade through this difficult time” he said.
