It's not That Bad : Industry Optimistic for 2024
The Urban Developer
Clare Burnett
15 February, 2024
While times have been tough, we could be looking at brighter times ahead in Queensland and indeed nationwide.
“Consumers think the market is worse than the height of Covid and the GFC... but it’s not that bad,” KPMG chief economist and keynote speaker Brendan Rynne told The Urban Developer’s Queensland Property and Economic Outlook event yesterday (Feb 15).
As part of the event, Rynne and a panel of local experts discussed macroeconomic factors impacting development in the state as well as more specific pressures.
Rynne self-deprecatingly declared that predictions made last year were akin to “professionally dropping my pants”.
“We thought it was going to be pretty negative for the year [in 2023], but in fact we got average growth of around 5.5 per cent,” he told the audience.
The major issue with last year’s predictions was that net population growth went far beyond any forecasts, Rynne said.
“There was an expectation that we would get overseas migration of 190,000. So far it’s nearly 600,000. We had population growth last year of nearly 2.5 per cent. That has a massive influence on many aspects across the economy,” he said.
“That population growth kept aggregate demand so much higher than what we thought would be the case.”
Anticipating concerns from the room about interest rates in the coming year, Rynne said it was predicted that the cash rate would fall 50 basis points over this calendar and another 50 basis points in the first half of next year.
Added to Stage 3 tax cuts, a fall in interest rates would allow increases in household disposable income, he said.
Panellist Andrew Malouf, co-founder of high-end residential developer Spyre Group, said that he hoped this would be the case.
“[Interest rates are] impacting the cost of financing and the cost of funds. We’re already seeing such a strain on construction and the labour market and the cost of constructions, if we can ease off on the interest rate rises, that will give us more momentum.”
Fellow panellist and investment general manager at QIC Real Estate Miranda Wilson said that despite a steady pipeline of projects, QIC had encountered headwinds.
“What we’re finding is we’ve gone through a period of pretty significant asset repricing and the market fundamentals of our assets, on completion of these projects, has shifted out to the point where the balance between the cost to deliver the project and the on-completion valuation is underwater,” she said.
“It’s become increasingly difficult to demonstrate that a project has viability and in a market where our investors are prioritising where they’re putting their capital, it’s getting a bit competitive.”
Inevitably, the topic on everyone’s lips, especially third panellist chairman of Hutchinson’s Builders Scott Hutchinson, was construction costs.
“It seems to be coming off its peak,” Hutchinson said.
“We were doing probably 10 per cent of what was coming in last year and it’s a little bit better than that now but the industry is still madly overheated. But what’s starting to happen is the private work is stopping now and that needs to happen further.”
Builders are dealing with the overdemand in the best way they knew how.
“You’ve got to pick the eyes out of the jobs you want and be careful who you work with,” Hutchinson said.
“The government is usually better than private work, that goes without saying. Government stuff gets the priority and long-term clients do.”
Spyre’s Andrew Malouf said creativity was key.
“We don’t have a big spectrum [of builders in Queensland] at the moment.
“Moving forward in construction, there needs to be more of a shared risk model if we’re going to get that opportunity off the ground and being more creative about getting that project off ground.
“The whole concept of a D&C [design and construct] is dead, a lot of people are looking at something like a construct-only with some design liability, it’s not a circumstance where we can put the whole onus on the builder anymore.”
The proposed Gurner and Roberts Co merger, which is set to be decided this month, is a large-scale example of this rearrangement of risk and, on smaller scales, companies are expanding not only into residential but more shared-risk models.
QIC has recently announced a joint venture with Cedar Woods to allow the developer to dip their toe into medium-density residential at Robina.
Scott Hutchinson said that while taking only a small percentage of work, the way they operated was shifting.
“We’re getting better contracts in but still some of our guys are agreeing to stuff they shouldn’t, even though the risks they’ve taken on the job they’re working on aren’t working out, they’re still trying them on the next job, so that’s an education internally.
“[But] that is our thing, derisking projects and picking our clients very carefully.”
