Property markets are traditionally strong in Australia because of high immigration levels and the consumer desire to seek the Great Australian Dream of owning their own house or land.
Currently property companies servicing this market are facing pressures from:
- Poor residential demand with increasing consumer caution to debt, rising mortgage rates, increased household costs from rising utility prices and the end of the first home buyer stimulus packages.
- High national stock levels, now at a two-year high resulting in falling dwelling values and returns
- Increasing tenancy demands as buyers delay purchasing decisions or fall from the property market because of economic conditions
- Changes in lending policies that restrain over-market purchases and subsequent debt levels
- Recovery from the recent natural disasters of flood and fire
- Increased vacancy levels in all commercial markets and tight credit and debt funding for business
- Poor competition for retail properties as consumer spending slows and moves toward online alternatives
- Oversupply and low construction levels in the industrial markets
With this market slowdown, real estate and property businesses must tighten operations and internal controls that may have become lax during the recent property boom. Buyers and landlords look for established companies with good management systems and low administration costs and competition will become extremely fierce.
With the boom in residential and commercial construction beginning to ease, the return to the days of buoyant consumer and investor confidence may take several years.
Markets fuelled by government funded disaster recovery will skew the national market and provide many challenges for construction companies operating in capital city and traditional markets. Changes in government in Victoria and NSW will also see dramatic changes in direction and policy.
With non-residential building declining, and building approval slow, firms operating in these highly competitive sectors will be challenged for the first time in several years and rationalisation of suppliers may occur.
Engineering construction is still expected to rise as the resources boom continues; road and rail construction, it is assumed will remain solid due to continued government infrastructure but this prosperity will not be uniform and patchy conditions will prevail in some areas.
Those operating in disaster-affected areas requiring renewed infrastructure will face the challenge of managing rapidly increasing business while those in traditional markets may see a sudden reduction in projects.
The long-term winners will be property and construction groups that can extract extra yields by improving operating performance and increasing the effectiveness and efficiencies of each of the key elements of their supply chain. But this is easier said than done.
Although project management is a vital discipline it remains a misunderstood one. Delays and cost overruns are chronic problems that still exist for many construction and property companies, leading to poor profitability, loss of market share and reputation, increased turnover of management and workforce, lower productivity, higher costs and all too frequently, costly litigation.
Oakton’s construction consulting experience
For over 20 years Oakton has helped a number of property and construction companies on strategic issues, such as performance improvement, operating efficiencies, cost management and reduction and organisational effectiveness.
In the last 12 months we’ve created tangible value for Leighton Contractors, Lend Lease and The GPT Group.