Guest Post: Why it’s more important than ever to work with experts when it comes to Property Development
Whether you are starting a development, carrying stock or land banking, 2019 will be an interesting year.
Those with the best, independent advice will win.
If you have had your head down, you may have missed a few changes in the global and local market conditions that are influencing what is going to be an interesting year.
From our work with a diverse range of businesses operating in Australia and internationally as well as our specific work with Property Developers, here’s what we are observing in the economy and markets:
There’s some macro-economic factors that mean we should be cautious
Chinese money has largely disappeared from the Australian property sector – This is due to a combination of onerous FIRB restrictions and less Chinese buyers overall. Whilst some developments could count on approximately 30% of property being bought by Chinese buyers, sales now to this segment is non-existent.
Migration is expected to slump – Strong migration has always been a key driver of growth in the Australian economy. Australia’s total population is now 25 million (a milestone that’s been reached 33 years ahead of schedule). Politically there are calls for reducing immigration and recent opinion polls show a majority support for reduced migration.
Our recent GDP figures are masking a struggling economy. GDP iron ore and coal exports are holding up our recent numbers along with retail figures that reflect the seasonal Christmas spending spike. China is in a trade war and if the US push tariffs to 25% U.S will buy less from China and this will create problems. China is buying more commodities from South Africa vs Australia. Our GDP is not really representative of what’s happening in Australia and masking some worrying trends.
Locally, there’s no doubt that political change is ahead. With an upcoming election, changes to negative gearing and capital gains tax are on the election agenda and will impact the property sector should we see a change in Government.
The Royal commission has made a tough market tougher – When it comes to funding of property development we are seeing tightened credit like we’ve never see before. In some cases lenders are blacklisting suburbs. This is leading to a rash of new lending entrants appearing, however, who knows their track record and there’s little to no regulation in place to protect borrowers
Greens are resisting development and are gaining more power – As a result the DA process is becoming more onerous. A lack of trust overall due to previous state and local government corruption is also making regulation more rigid and inflexible.
Costs are rising and retail is struggling
Rates and land taxes and power costs are on the increase, combine that with almost non-existent wage growth and you have a sector that is one of Australia’s biggest employers, retail, in trouble. This in turn affects the propensity to buy property, combine that with the first home buyers grant no longer being available and we are looking at a really tough market.
OK, so what does this all mean?
To stay active in the market you need the very best advice:
To be successful in today’s market you must:
- Manage current facilities with your lenders
- Don’t just go shopping, loyalty is key
- Understand the menu of how to blend the best types and amounts of facilities.
- Understand the impacts of royal commission, how this will affect some finance partners and middle-men more than others.
- Look at your projects across the board, really understand cash flow planning.
- Become a guru on covenants, head room and how your lifestyle and the whole structure impacts your businesses.
- Profit and losses tell a fraction of the story only. Understand amortisation, tax planning, and management of your personal and business balance sheets. Actually.
- Performing sensitivity analysis with cash flow scenarios with respect to property demand, a potential oversupply and further falling in the market, is a key to a smoother year.
- Some insolvency advice, at least to avoid and reduce your exposure to this situation, will be critical in 2019 too.
Get independent advice from experts who understand the myriad of lending, strategies, who are good enough to be paid up front, not just from commissions. Trust me, getting the best advice is often the difference between survival/winning and failure even more than ever.
David Kenney is a trusted business partner of DFP. He is a senior partner of Hall Chadwick and expert. He advises many of Australia’s best businesses both private and public companies, Family Offices, CEOs, and high-net-worth individuals.
Equally important to David is working with and supporting founders. He loves helping people and this passion translates to an overwhelming number of successful businesses as his clients. His clients read like the Who’s Who of the best Australian businesses, founders and people in an array of industries
For further advice contact:
David Kenney, Partner Hall Chadwick
P: 9263 2611
Could your next project benefit from some expert development finance? Get in touch.
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