Market Insights
2024 PROPERTY INDUSTRY RELATED PREDICTIONS
BY BENNI ARONI Client Director -Property Pitcher Partners
2023 was a challenging/difficult/disastrous year for the property industry … feel free to choose your own adjective, but for almost all in the industry this covers the spectrum. 2024 is predicted by most to be more of the same with cautious green shoots of optimism about 2025.
higher than the historical costs developers were obtaining to achieve a 20% plus Internal Rate of Return (IRR) in feasibility. There is no expectation that they will materially reduce and in fact, those builders that have survived are determined to accept less risk and demand more realistic margins. Builders in 2024 will continue to compete with government projects for sub-contractors and labour, which will likely maintain the existing level of costs New protections for defect and warranty processes for apartment buyers, which are long overdue, will further add to developer/builder costs, as will government taxes and levies on all stages of the development process. Inflation Inflation in 2024 will be less of a concern than in 2023 but the cost of housing and rental with the housing supply shortage, plus the cost of labour, will mean it will continue to be a factor influencing Reserve Bank and Government policies. That in turn may delay or preclude stimulus and reform packages which our industry and the economy are desperate to explore and implement. Employment Unemployment rates will increase in 2024 across most sectors. The lack of investment by the private sector in the last few years
Accepting that none of us can predict the impact of global factors such as the Middle East conflict, the US election or the next pandemic, for the sake of our eco-system and our sanity we need to strategise and plan our next 12-24 months. So, with various degrees of confidence let me share my predictions on the 10 areas I am asked about the most: Interest rates The consensus view, which I agree with is that we are near or at the top of interest rate rises. What is opaque is whether there will be any material lessening of the cost of debt finance from any source in 2024, and here my personal view is “no”. Developer finance does not have the same volatility as home loan finance. The demand for debt refinancing is deep so that even if the demand for new project financing is down there will be a lag before investors are prepared to accept lesser returns. First mortgage funding from the non-bank sector in 2024 will still in my view fall in the 9-11% range, plus valuation and establishment, house costs. Traditional bank funding rates may soften slightly and where there is competition to lend such as residual stock or data centres there will be wiggle room to negotiate. Construction costs Construction costs have stabilised, but they remain significantly
6 – February /March 2024
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