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ANZ Associate Director of Property Daniel Gradwell shares his take on how rebates influence financing decisions, what is driving price resilience, and construction cost pressures.
How are rebates and incentives factored into project financing?
We look through rebates and incentives whether from developers or governments. A good example is the HomeBuilder Grant; we were happy to finance projects supported by it, as was the broader industry.
HomeBuilder was interesting because it brought forward a lot of demand that already existed, especially in Melbourne greenfield projects. We saw a spike, followed by a gap. But overall, it didn’t fundamentally change the supply-demand equation, just the timing.
Incentives and rebates are fine, provided there’s underlying demand and the market isn’t entirely incentive-driven.
If the market was completely reliant on incentives, we would start questioning valuations for future stages. But we haven’t seen anything alarming. It’s a cyclical industry but supply is still turning over at a decent pace. That gives us comfort that there’s still genuine demand.
Have incentives affected settlement risk or valuations at the purchaser level?
Settlements are generally tracking fine. There may be isolated cases falling through, but nothing widespread. At a macro level, Victoria’s unemployment rate is basically where it was a year ago, with 80,000 more people in work and that’s reassuring.
If unemployment were rising, we would be more concerned about settlement risk, but that’s not what we’re seeing. Over the past couple of years, even through the rate hiking cycle, settlement activity has held up well.
At a ground level, some fall overs are inevitable, but they remain low in number – which is positive. One thing we are watching is the timing of delivery; making sure stages are built and delivered before sunset clauses become an issue. That’s particularly important given ongoing construction industry challenges.
Build timeframes for detached houses have definitely stretched from around 6-8 months to now 9-12 months post Covid, and pre-development works have been impacted as well. Sunset clause issues aren’t widespread, but delays are something we’re monitoring closely.
What is contributing to continued delays in construction timeframes?
Delays are still happening but it’s not just because of housing demand. Major government-funded infrastructure projects are creating strong competition for labour. This is particularly true in Victoria.
Governments can pay more than private developers, so they’re attracting the trades and contractors. Engineering construction in Australia is up about 30% over the last decade. So even though we’ve got materials supply sorted, which was the main issue five years ago, we don’t have enough workers.
It’s not just a metro issue but the pressure is definitely concentrated around Melbourne’s middle and outer suburbs. Younger workers from the regions are also moving into the city to follow that infrastructure work, which adds to the labour crunch in the regions.
So, while building approvals are lower than during the HomeBuilder boom, timeframes are still lagging. It’s not because of demand, but because we’re trying to build everything – roads, rail, homes – at the same time with limited labour.