Land developers are confident about the road ahead despite facing challenges on several fronts.
LAND developers are facing pressure from both sides of the supply and demand equation in Western Australia.
A shortage of trades, materials and developable land continue to hamper the delivery of house-and-land packages, as the industry grapples with the hangover from the COVID building stimulus.
Successive interest rate rises, escalating construction costs and delays to construction timelines have resulted in a hit to consumer confidence.
The collapse of multiple building companies during the past two years has exacerbated jitters among prospective homebuyers.
Urban Development Industry of Australia WA figures show lot sales declined by 47 per cent in the 12 months to December 2022, and by 2 per cent in the December quarter.
UDIA WA chief executive Tanya Steinbeck said this reflected buyers’ hesitancy to commit to purchasing a home.
“I think what we’re starting to see now is that pullback in terms of activity and sales, with an increasing sense of conservatism from consumers, a bit of wait and see,” she said.
“We’ve got interest rates continually going up ... there’s a level of cautiousness that has started to creep in, which is having an impact on sales.”
Despite this, the industry remains optimistic about the future. Housing Industry Association figures show that construction started on 4,090 homes in the December quarter of 2022, while 4,070 homes were completed.
This compares to 12 months prior when there were 5,965 build starts and 3,350 completions.
The HIA expects completions to begin to outnumber starts this year, but it will be several years before the pre-existing pipeline of homebuilding projects is worked down.
Ben Rosser says the north-west corridor, near Yanchep, is proving to be resilient.
Change afoot
Stockland general manager WA residential Col Dutton, also president of UDIA’s WA branch, told Business News the residential building industry was at an inflection point.
“The front-end trade availability is changing, and it’s just getting through the finishing trades; all that is at capacity and peak at the moment,” Mr Dutton said.
“Someone buying new in the next couple of months, by the time they get the contracts they won’t catch up to this choke that’s in the market.
“They’ll be free of all the pain the existing customers are going through in regard to getting their houses finished.”
Fall over rates, a measure of the volume of contracts that prospective buyers withdraw from, have increased significantly during the past 12 months.
Major players, including ASX-listed land developer Peet, have reported a near doubling in fall over rates since the start of this financial year.
Peet managing director Brendan Gore explained that delays in achieving lot titles, rising interest rates and an inflationary environment led to many consumers being unable to service their loans.
He said first homebuyers, who account for most land developers’ markets, were particularly susceptible to this.
“Through the construction timeframes, the length of getting titles and the length of building, coupled with the environment of interest rates, inflation, and cost of living … people are looking to get out,” Mr Gore said.
He added that WA’s use of conditional contracts, which rely on buyers gaining finance approval at the point of a lot reaching title, contributed to the rise in fall overs.
“It’s taking a lot longer to produce a titled lot and build a home,” Mr Gore said.
“When COVID hit, we could get an approval out in 14 to 28 days, compared with three or four months. It’s morphed back into three or four months.
“I think COVID demonstrated clearly that if we wanted to make a change and speed things up, we can; but we’ve gone back to where we were.”
He said the state and federal government stimulus during COVID had brought forward about six months of demand, which the industry was still working through.
Mr Gore said while current fall over rates would affect Peet’s bottom line in FY24, they indicated there was still strong demand for house-and-land packages.
“If gross sales are strong … what it does tell us is there is an underlying demand,” he said.
“When interest rates settle down and people have clarity as to where the lie of the land is, that’ll then give people confidence to come back.
“The underlying fundamentals are still pretty strong across the country, [with] low unemployment, wage growth, confidence … but there’s just that uncertainty [which is] not unusual for a change in the cycle.”
Mr Gore said until the uncertainty dissipated, the industry would be “bouncing along the bottom”.
Despite recent low sales volumes, Peet is eyeing record profit for 2022-23, largely due to $930 million of contracts the group had in hand leading into this year.
Mr Gore said 2024 would be challenging, given the run rate of sales throughout this year.
In WA, Peet is focused on its Glendalough project, where it has approval to build 100 two-storey townhouses. The developer, which ranks fourth on Business News’s Data & Insights land developers list, expects to start construction on the $75 million development later this year.
It is also part-way through its 4,000-lot Brabham development, which is expected to take 15 years to develop.
Nigel Satterley says buyers are cautious in the current environment. Photo: Matt Jelonek
Product focus
Peet also has development approval for a $20 million, 11-storey apartment project in Glyde Street, Mosman Park, but is holding off on the build until market conditions cool.
Mr Gore explained that developing apartments was riskier than house-and-land packages, particularly in an environment where construction costs were rising so rapidly.
National developer Cedar Woods Properties, which ranked number nine on Data & Insights’ largest land developers in WA (see page 33), was facing a similar challenge.
Cedar Woods Properties state manager WA, Ben Rosser, told Business News the Incontro townhouse development was nearing completion, but the company was holding off launching the apartment phase of the Subiaco project.
“We’ve got an apartment stage [at Incontro] of 110 apartments,” he said.
“[But], no different to any other developer, we are watching that equation of revenue and pricing, of what we can sell them for versus what they’ll cost to construct, and once we’re ready they’ll be coming to market.”
Mr Rosser said building anything above a single storey was difficult in the current environment, where cost blowouts and construction delays were common.
“In the past we’ve done a lot of that, through our estates, particularly Bushmead with our Overwatch (two-storey) product, but two storey at the moment is difficult to stack, because of the cost of construction and the build duration,” he said.
Cedar Woods, which posted a 50 per cent drop in presales nationally in its FY23 half-year results, recently launched land estates in Eglinton and Rockingham.
The ASX-listed land developer bought 86 hectares in Eglinton for $49.5 million in late 2021, where it broke ground on a 1,200-lot estate last year.
Mr Rosser echoed the views of other WA land developers in his preference for Perth’s north-west corridor, near Yanchep.
“We’ve never operated in that north-west corridor [before] but we’ve been watching it closely, studying it, and the time was right when this piece of land came up for us to enter,” Mr Rosser said.
“The north-west corridor is by far producing the best sales results at the moment and is proving to be the most resilient.”
Satterley Property Group, which ranks as the largest land developer on Data & Insights, is part-way through its Allara project in Eglinton, where it expects to have 2,565 homes on completion.
The Eglinton development, about 20 per cent complete, is set to include primary and high schools, a childcare development, a mountain bike park, and recreation areas, among other amenities.
The company’s chief executive, Nigel Satterley, told Business News the north-west corridor was closely followed by the north-east, near Caversham, in terms of growth areas.
Satterley has added to its significant land bank in WA with a $50 million purchase of more than 30ha of land in Piara Waters, according to industry sources.
It is understood the group plans to launch an estate in the suburb, near Jandakot, next year.
The land developer has encountered significant community backlash to its proposed housing development in Stoneville, east of Perth, with its subdivision plans dating back more than three decades.
Satterley Property Group built a mountain bike park at its Allara estate in Eglinton.
Satterley’s plans for 1,500 lots across 550ha in North Stoneville hit a stumbling block in 2020 when the Western Australian Planning Commission rejected the group’s local structure plan application.
The proposal was revived late last year in the State Administrative Tribunal, and Mr Satterley said a new, lower-density proposal for the area would be released for comment in coming months.
“We’ve done extensive consultation, and once the government make their comments on the new plan we will consult very thoroughly with the people,” he said.
Mr Satterley rejected criticism that he was too close to the government, following reports last year he had entertained Premier Mark McGowan at a wine tasting at his home.
“I’m not close to government, I work with the government of the day,” Mr Satterley said.
“You get no favours.”
Satterley Property Group’s lot sales are down about 60 per cent compared with 12 months ago, running at about 130 sales each week between new lots and the demolish-and-build market.
“The market is cautious,” Mr Satterley said.
Supply pressures
The average lot price in WA’s greenfields areas has dropped 3.1 per cent to $236,843 in the 12 months to December 2022, UDIA WA figures show.
In the same period, the average price of lots on the market has increased by 6.2 per cent to $251,427.
UDIA figures for the December 2022 quarter show a 1.7 per cent lift in average land prices.
Stockland’s Canopy townhouse development in Glendalough.
Mr Satterley said Perth land prices were positioned to grow over the next 12 months.
“Land prices haven’t moved very much, but I believe they’ll move by at least 5 per cent over the next nine months,” he said.
Industry experts say a lack of available land to develop amid relatively high demand is likely to result in upward pressure on land prices.
Recent UDIA research shows that 24 per cent of land zoned urban, and 18 per cent of land zoned as urban deferred, is unable to be developed due to environmental or infrastructure constraints.
“This ultimately means that we’re looking at a reduction of [between] 150,000 to 200,000 potential new homes that cannot be realised,” Ms Steinbeck said.
Frasers Property Australia, which is working to deliver estates in Port Coogee, Baldivis and Mandurah, said its lot sales had lifted this year by about 15 per cent.
Frasers general manager development Tod O'Dwyer said he did not expect the issues affecting the construction sector to ease soon.
“A number of key market indicators remain solid, which is reassuring,” he said.
“However, there is also no doubt that the challenge of managing construction cost escalation and the supply of labour and materials are front of mind for industry, and we don’t see anything fundamentally changing around these issues in the immediate term.
“That said, I do believe we will see a positive impact in the form of stronger relationships between developers and the civil building construction industry, as each of us works together in managing challenges and delivering the best possible outcomes.”
