Wow! What a crazy last 6 to 9 months it’s been! Could anyone have predicted the current market events? Yep, we kinda did! And we’ve got a lot of grateful clients who followed our guidance and have fared exceedingly well, beyond even our high expectations.
But if you’re still reeling and wondering what’s going on, this blog post will help you stay on track.
On the go? Here’s 30 seconds of take outs:
- In a volatile market your mindset plays an important role in making investment decisions.
- Government stimuli results in an increase in construction which actually increases the cost of building a house.
- A fixed-price building contract can offset these additional costs.
- The conclusion of the HomeBuilder Grant in March 2021 resulted in less home loan approvals and building approvals.
- Titled land availability across most Australian markets is lower than any time in the last decade.
- Less available building materials and labour mean that construction delays are inevitable, so building contracts with guaranteed timelines are crucial.
- Capital Properties can help you navigate these tricky market conditions.
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The importance of mindset in an unpredictable market
In our March 2020 blog post ‘OPPORTUNITYISNOWHERE’ we talked about how the events in early 2020 compared with past economic down turns and their effect on the property market. In particular, we discussed the measures our Government took to soften the impact on the property market. And though we don’t want to claim that we’re fortune tellers; we certainly knew where the story was headed. Like a scripted play – things unfolded even better than we predicted.
In the property game it’s far better to be cautiously optimistic and set a realistic expectation. Then you’ll end up pleasantly surprised rather than disappointed with an unexpected outcome. Your psychology can work for you or against you in your decision-making process. We’ve discussed before how your mindset plays an important role and it really is a double-edged sword. For a refresh, check out this post; The difference is perspective.
But whatever your mindset, this market can test the most resilient of investors. With so many asking us “What the heck is actually going on in the property market?”
Let’s take a look at what’s going on in the property market
Building approvals are up (and so is the cost to build)
In rising property markets, and particularly in markets that are benefitting from a Government stimulus, we tend to see a significant increase in construction. As with any cause-and-effect situation, this can result in shortages of materials and labour which in turn forces an upward pressure on the cost of building a house.
Interestingly, although it may seem counterintuitive, it’s in these markets that many builders go ‘belly up’ or insolvent.
What does this mean for the investor?
Put simply, you should expect an increase in the cost of building a house. But there are ways to offset this risk. Firstly, we advise that you enter a fixed-price building contract. So, if the market shifts, your building contract won’t.
Government stimulus eased
During the later months of 2020 and earlier months of 2021 there was a real urgency for buyers to take advantage of the HomeBuilder Grant before it finished in March 2021. Many of the latest CoreLogic reports indicate that home loan approvals and building approvals have therefore also diminished since the end of March. As a result, we’re now noticing that the property market is gradually decelerating. However, it’s far from grinding to a halt as there are still First Home-Owner Grants available. We’ve discussed First Home-Owner grants before here.
We’re also noticing that property is taking a little longer to sell and many properties which had not sold when purchasers were not able to proceed are now coming back to the market. Overall, though, the current market conditions are still well above levels seen in recent years.
Low stock levels
Capital Properties are witnessing the lowest titled land availability seen in the last decade in every one of the markets we’re currently active in. This includes South East Queensland, Newcastle and the Hunter Valley Region, Regional Victoria, Metro Adelaide and Perth.
We’ve seen land developers who’ve been unable to keep up with pent-up demand and deliver projects on time. This was largely due to the increased construction timeframe because of material shortages and reduced availability of labour.
Expect construction delays
This perfect storm of increased demand coupled with reduced materials and labour means that it’s felt across most construction sites. Contractors are jostling for the best jobs and developers need to be wary of choosing the right teams to work with.
We recently experienced firsthand how greed can create untimely delays that no one could have planned for. We’d scheduled a slab pour for a job but at the last minute the concreters said that they weren’t going to complete the pour as they’d accepted a contract from another builder who’d offered more money to complete their job first. Money talks!
So, we know that contractors across the board are experiencing delays. The sheer volume of construction happening at the moment obviously effects scheduling and the recent extreme weather events have compounded those delays. As a result, many builders have had to engage new contractors and many of them have needed to be issued with an ‘Extension of Time’.
How can investors offset this risk?
Investors entering building contracts should be in agreement with their builder about their building start time. And remember that it’s vital to enter a building contract with a guaranteed build timeline.
A gradual easing of property market conditions
At Capital Properties, we anticipate that the Australian property market conditions will remain elevated but not at the more extreme levels we experienced over the last 6 to 9 months. And let me tell you that we, along with many others, will breathe a sigh of relief! It’s been a stressful market to work in. If you’re wondering why, I’ll explain…
Because of the recent extraordinary conditions, we’ve heard of some vendors who’ve verbally agreed to terms and prices but then reneged at a later stage. They’ve asked for a higher price or decided to no longer agree to the terms prior to exchanging contracts.
There’s also plenty of instances where there haven’t been any ‘titled’ (i.e. ready to settle) or registered blocks of land available (i.e. blocks that are ready for construction to begin). Thankfully, we’re anticipating that we’ll see more stock come to the market in the coming months and are predicting that the market will stabilise back to something closer to ‘normal’.
This has been, without doubt, the most dynamic and challenging market that we’ve worked in for many years, but we’ve been fortunate to still be able to provide our clients with solutions and results that have seen them make the most of this volatile market.
Many of our Clients have told us how grateful they’ve been for the Capital Properties discovery session that helped them navigate these tricky waters. We urge you to book your free discovery session to learn how we can help you too.