VIC MARKET OVERVIEW
VICTORIA
Danny Clark - Partner - Gross Waddell ICR
As we move into the second quarter of the calendar year, with fewer seasonal obstacles like Easter and public holidays in front of us, describe the sentiment among vendors and buyers across all asset classes and has there been a shift? The development sector still has some obstacles but there is an fundamental growth in appetite from developers. Developers are starting to prepare for their next cycle and are on the search for projects they can deliver over the 2025/2026 period. The motivation for Vendors to sell is increasing as refinancing is still proving very complicated and the increase in land tax is starting to take effect. With ongoing interest rate instability, have you seen an uptick in receiver stock and what’s the appetite from vendors to meet price expectations from prospective buyers? We thought there would be a wave of receiver or mortgage in possession sales in 2023 but it never occurred as expected. A majority of the mortgagee in possession sales are generally smaller sites with less margin, where a developer may simultaneously have 2-5 other smaller developments and therefore their whole portfolio is impacted. Smaller development sites have less margin for error and ultimately harder to trade out of once the market shifts.
A mortgagee in possession sale can go either way - it can either exceed expectations as the marketing generated phenomenal market competition or their debt is too high and they take a hit. In some cases the lenders build out the projects to maximise a return for their investors. We hear that building costs have peaked but what does this look like in your respective market and have project feasibilities improved/declined? If so, what has been the overarching impact on demand and supply for residential development projects? Building costs are now more predictable but they aren’t going to go down. It was expected that the slowdown in projects under construction would force construction groups to bid more aggressively, however, there are less builders in the marketplace plus the continued push from Unions may affect construction prices to slightly rise over the coming period. Until we see larger development sites in the middle to outer ring occur, construction prices will remain high. Large scale developments in those sectors aren’t feasible yet and the Government needs to make it more attractive for investors to buy off the plan, otherwise, that middle to outer ring won’t see apartments delivered for some time yet.
DANNY CLARK
48 – May / June 2024
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