The Urban Developer
AdvertiseEventsWebinarsUrbanity
Industry Excellence
Urban Leader
Sign In
Membership
Latest
Menu
Location
Sector
Category
Content
Type
Newsletters
Urban Leader Awards Logos RGB White
NOMINATIONS CLOSE SEPTEMBER 12 RECOGNISING THE INDIVIDUALS BEHIND THE PROJECTS
NOMINATIONS CLOSING SEPTEMBER 12 URBAN LEADER AWARDS
LEARN MOREDETAILS
TheUrbanDeveloper
Follow
About
About Us
Membership
Awards
Events
Webinars
Listings
Resources
Terms & Conditions
Commenting Policy
Privacy Policy
Republishing Guidelines
Editorial Charter
Complaints Handling Policy
Contact
General Enquiries
Advertise
Contribution Enquiry
Project Submission
Membership Enquiry
Newsletter
Stay up to date and with the latest news, projects, deals and features.
Subscribe
ADVERTISEMENT
SHARE
print
Print
ExclusiveTaryn ParisThu 17 Oct 24

‘Indicators Flashing Red’: Finding Property’s Goldilock’s Zone in 2025

We may have been dealing with a bear market for the past few years, but a Goldilocks zone could be right around the corner for Australia’s property sector.

Speaking at The Urban Developer and MaxCap industry lunch in Sydney recently, MaxCap head of research Bruce Wan said the win-win market conditions would help catalyse many projects that had languished in the doldrums of late. 

“We’re expecting more rate cuts to come in 2025. What’s priced in is four rate cuts to the end of next year,” Wan said. “And that’s going to be quite transformative for the most rates-sensitive sectors of the economy.

“Our market cycles swing literally by those interest rates. So what was really hurting the sector with high interest rates for the past couple of years is going to turn and be a lot more accommodative and supportive as well.”

Wan said the undercurrent of pessimism would shift quickly with interest rate cuts, for the people buying the housing and the people building it.

“With a cash rate of something closer to 3.5 per cent, that will create much more of a ‘goldilocks zone’,” Wan said. 

“There will be something for the [financier] in terms of lending out the money but there will also be something for the borrower in terms of making the development stack up a little more easily. 

“So it’s less of a transfer of wealth from borrowers to lenders, some of that is coming back a little bit. And where we end up in 2025, particularly towards the back end of 2025, will be a far more balanced state of events in terms of what you need to borrow and what you’re paying the lenders to get the deals up and running as well.” 

MaxCap head of research Bruce Wan
▲ MaxCap head of research Bruce Wan says there is some cause for optimism, but the warning light is still on for the economy.

But there was still a way to go, Wan warned. 

“A lot of the indicators are flashing red at the moment,” he said. “The economy is really struggling at the moment. Growth is at about 1.1 per cent, we are close to going backwards in a recession.

“If it wasn’t for the migration boom that we’re seeing right now, if we look at GDP per capita, we’re definitely going backwards. GDP is growing at about 1 per cent, and GDP per capita is -1.5 per cent, so really struggling.”

Investment appetite firm on residential


Migration has already pulled back in the past six months and, if it continues, we risk a “self-inflicted wound in terms of slowing the economy too much”.

“The big risk is if we do a massive pullback in population growth in tightening up borders a lot of the strong housing demand and the resilience of the economy may fade away,” Wan said. 

But the fundamentals underpinning housing supply are still providing strong tailwinds for the asset class, which Wan said was likely to outperform many commercial sectors. 

“Housing demand is still outrunning housing supply by a long margin,” he said. “Even if we see migration halve over the next two to three years, we’ll still see excess housing demand as well. So all of those things have been very supportive of holding up housing prices, even when we saw rising mortgage rates. 

“But looking forward, falling mortgage rates and existing demand, both of those things will be holding up housing prices, so selling prices should be better supported in 2025, because of those tailwinds coming through as well.

“Every housing cycle in Australia for the last 40 years, the trigger has always been rate cuts and it is very powerful.”

Sammut Group chief executive Allen Sammut says he has not seen a feasible project cross his desk in the past two years.
▲ Sammut Group chief executive Allen Sammut says he is acquistive but finding it hard to make projects feasible. 

But delivering the housing with a limited building capacity is another challenge, something Sydney and Gold Coast developer Allen Sammut is grappling with. 

Time is money for challenged feasibilities


Sammut said the delays in planning and construction were seriously impacting the internal rate of return and had to be factored into feasibilities. This, he said, was adding to housing supply constraints and affordability of product. 

“The time factor involved in getting anything delivered at the moment. The cost of construction is absurd, money is expensive, but I’ve borrowed at 19 per cent, I’ve been doing this for 41 years, so it’s not that scary–but the time factor is what is hitting us the most.

“Building is taking longer, the system that’s in place, the red tape, the portal system, the cost of all of that just makes the housing crisis worse … if you want to fix this up you have to speed up the process. 

“That’s the biggest factor that will bring affordability back into the market. I can’t see anything at the moment that is feasible coming across my table.” 

null
▲ MaxCap chief investment officer Bill McWilliams (left) said the Goldilocks zone will help projects to stack.

MaxCap Group chief investment officer Bill McWilliams has an intimate view of the challenges around feasibilities. 

“There’s some landbanks on our books that the developer thought would be activated two years ago but it still hasn’t been activated and that hurts. There’s holding costs, there’s land tax costs,” McWilliams said. 

“Feasibilities that didn’t work two years ago, they’re probably still not working today.”

But McWilliams says there are green shoots forming. 

ResidentialSydneyDevelopmentPlanningMarketsReal EstatePolicyConstructionSector
AUTHOR
Taryn Paris
More articles by this author
ADVERTISEMENT
TOP STORIES
Stockland bumps up its apartment pipeline in melbourne and sydney
Exclusive

Stockland Re-Enters Density in $5bn Apartment Play

Renee McKeown
4 Min
Woolloongabba Precinct Vulture St
Exclusive

Brisbane Developer in Cross River Rail Compensation Tussle

Clare Burnett
4 Min
The Mondrian Gold Coast hotel's food and beverage is driving profits
Exclusive

Touch, Taste, Theatre: What’s Driving Mondrian’s Success

Renee McKeown
6 Min
Fortis’ display suites are designed as brand environments first, with tactile details and curated design to build buyer confidence before project specifics.
Exclusive

Relevant or Redundant: Will Tech Kill Display Suites?

Vanessa Croll
7 Min
Exclusive

Missing Heart: Why The Gold Coast Needs a CBD

Phil Bartsch
7 Min
View All >
South Melbourne social housing precinct
Affordable & Social Housing

South Melbourne Housing Precinct Revamp Takes Next Step

Leon Della Bosca
JQZ Parramatta EDM
Residential

JQZ Plots 10-Storey Addition to Parramatta ‘Auto Alley’ Plans

Clare Burnett
Aerial view of Caboolture and Bruce highway to Brisbane with Bribie Island Road crossing, Queensland, Australia
Policy

Queensland’s $2bn Push Opens New Housing Front

Vanessa Croll
First projects named in a statewide plan to fast-track supply, including thousands of homes in a major growth region…
LATEST
South Melbourne social housing precinct
Affordable & Social Housing

South Melbourne Housing Precinct Revamp Takes Next Step

Leon Della Bosca
2 Min
JQZ Parramatta EDM
Residential

JQZ Plots 10-Storey Addition to Parramatta ‘Auto Alley’ Plans

Clare Burnett
3 Min
Aerial view of Caboolture and Bruce highway to Brisbane with Bribie Island Road crossing, Queensland, Australia
Policy

Queensland’s $2bn Push Opens New Housing Front

Vanessa Croll
2 Min
The Adelaide purpose built student accommodation market is about to increase by 1058 beds with the State Commission Assessment Panel supporting two towers in the making.
Student Housing

Highrise Approvals Add 1000-Plus PBSA Beds in Adelaide

Renee McKeown
3 Min
View All >
ADVERTISEMENT
Article originally posted at: https://www.theurbandeveloper.com/articles/maxcap-the-urban-developer-property-goldilocks-moment