Taking on the Big Issues
Escalating building costs, lagging building approvals, labour shortages – our experts pinpointed these as some of the major issues facing the property market today and to counter them have had to be more innovative than ever before.
Australian Development Capital’s executive director Adam Zorzi says he’s never, in his long career, seen anything like the current rapid escalation of building material, labour prices and the most senior players in the sector agree.
“There are projects that I know of, with builders on ECIs [Early Contractor Involvement], that when prices have come back from trades in a matter of weeks, they’ve gone up 15 or 20 percent.
“As we all know, a 20 percent increase in build costs, that in itself makes a project unviable.”
However, industry leaders agree the high cost of materials is just one of the challenges they face and combined with others, like labour shortages, means they can’t deliver projects quickly enough.
Some speculate labour is a short term problem which will be alleviated by the loosening of WA’s border restrictions. However, Iris Residential managing director Simon Trevisan believes it’s an international issue, only truly overcome when the flow of immigrants from developing countries resumes.
CEO of OVEST Industrial and Hero Properties Julie Drago explains lengthy Local Government approval processes are further exacerbating delays and the fact their product can’t be delivered for two years creates additional challenges when trying to sign leases with clients.
“In addition, you can almost promise something will happen in terms of further delays; you can’t get steel, you can’t get mesh and so on. It’s just impossible to get materials at the moment,” she says.
“In relation to planning, there’s such a long approvals process. I’ve recently completed a building, it’s a 10,000 square meter industrial building. It took me six months to get a building license and it only took me eight months to build it. So, red tape is continuing to constrain the industry and hold back growth.”
However, WA’s planning issues run much deeper than just slow approvals. Mr Trevisan says there’s a reluctance from some Local Governments for increased high and medium density housing when the need for that type of housing is an ‘inevitable consequence’ of Perth maturing as a city.
Property Council WA, executive director Sandra Brewer says the reluctance from some Councils can occur where councillors are elected as single-issue candidates and make broader decisions that don’t reflect community sentiment. She points to a Property Council survey of Perth residents which showed 74 per cent were supportive or open to medium density development in their suburb.
Sirona Urban managing director Matt McNeilly says the problems are further compounded by vastly outdated Town Planning Schemes held together by ‘a hundred scheme amendment band-aids’.
“We all surround ourselves with smart planners, but even they can’t navigate half of the time. It is a very, very tough thing to navigate; time consuming and expensive. And as a developer you grow less and less enthusiastic for the process,” he says.
The State Development Assessment Unit he says, now at least provides a decent alternative pathway for large scale projects.
It’s a view supported by Michael Lurie and Associates principal Michael Lurie who says local councils are best sticking to rates and rubbish collection and planning needs to be invested in an overarching authority with a broad view of the city in its entirety, particularly in this time of rapidly expanding populations.
Celsius Property Groups managing director Richard Pappas agrees planning schemes require continual updating through a conversation with the community to keep up with current market trends like the proliferation of downsizers.
“They now have extra equity in their home because all their houses have gone up considerably in the last 12 to 18 months. They want to make a decision now, and whilst they don’t really want to buy off the plan, they want to buy within their current neighborhood where they feel comfortable and already have a life within the local community,” he explains.
“The State Government is doing a good job in reviewing planning policy and recent changes that ensure Councils review their Schemes every five years, which they didn’t have to do before, will result in more updated schemes through consultation with the community and action.”
Answering with Innovation
Lester Property Group executive director Russell Lester says his company aims for diversification to minimise its exposure in this tumultuous market. Part of that is its new lifestyle village development marketed to the over 50s (not under the Retirements Villages Act) which allows buyers to unlock the equity in their homes.
“It enables those people to sell their existing home for four or five hundred thousand dollars, buy a brand-new home for $300,000 in our village, making a couple of hundred thousand dollars, which will then help pay their living expenses for the years to come,” he explains.
“Our biggest problem in this business is the construction and delivery of the homes. The legislation requires the homes to be transportable and therefore constructed in a factory and trucked down to site, but of course construction timeframes have increased considerably.”
Yaran Property Group is an affordable housing provider focused on the NDIS space. Director Faryar Gorjy says the company’s mission is to ‘be a blessing to others’ through housing which is affordable, fitfor- purpose and environmentally conscious. The company provides accommodation for participants both with or without Specialist Disability Accommodation (SDA). He says it fills an enormous need in the community where 37,000 people on the NDIS in WA are not eligible for SDA.
“Some of these people with disabilities may otherwise not have a home. At best they might have a room perhaps, in a share house but here they actually get a home, and it transforms a lot of people’s lives; their health recovers and that’s the fruit of what we’re doing.”
Scope Property Groups director Robert Engelhard says they’re looking to regional WA in what might have previously been considered undesirable postcodes for investment. The company recently purchased eight of 10 strata units in the Dampier’s’ only shopping centre, the ‘absolute eyesore’ that is Dampier Shopping Centre and is planning to terminate the strata scheme through the Strata Reform Act so a major refurbishment can take place.
He says it’s a great project, however since traditional funders were ‘not prepared to look at it’ the company entered a commercial arms length loan agreement with Karratha Council, who had already commenced revitalising Dampier by spending approximately $18 million on a community hub behind the shopping centre and $13.5 million on improving the foreshore in front of the shopping centre.
“And there was us in the middle,” Mr Engelhard says.
“That was the motivation and I guess that particular development and our model, is looking at adding value or repositioning assets, because to buy a vanilla asset in this market is very, very difficult given the metrics that we’re playing with.”
Companies: Westpac Banking Corporation Hero Properties Property Council of Australia WA Division Sirona Urban Celsius Property Group Lester Group Scope Property Groups Yaran Property Group
People: Adam Zorzi Julie Drago Simon Trevisan Sandra Brewer Matthew McNeilly Richard Pappas Russell Lester Robert Engelhard Faryar Gorjy