Last week Archistar.ai conducted a comprehensive market survey with the aim of sharing the key trends, challenges and forecasts associated with acquiring development sites.
Developers and other development property professionals were asked to give their view on the current market.
The top three industry challenges are published below and ranked from most challenging to least challenging.
The single biggest challenge facing Australian property developers is actually finding feasible sites that stack up.
This was expressed in a number of different ways. Many developers have found great development sites, but with the recent downturn in the eastern seaboard property market, are finding it hard to have reasonable vendor pricing expectations.
Some sample comments:
“Unrealistic vendors and agents that will tell the vendor what they want to hear to ensure they list the property.”
“There are more and more developers who need to unload – the problem is they bought in the peak of the cycle so they are unrealistic on price.”
“Unrealistic price expectations from vendors. They have not come to terms with the fact that when the resale market drops 20 per cent, develop site values drop by approximately 50 per cent – that’s just how feasibilities work”
“The biggest challenge is the landowners expectation of land value, which often stymies a potentially fantastic opportunity, as the feasibility doesn’t stack up”
“Due to the property boom land owners have unrealistic price expectations which would leave the development with very little profit margin.”
“Finding properties with development approval at the right price. There are a lot of properties out there but the prices are as if we have already built on them.”
Some smaller developers conveyed that actually finding the opportunities itself was the hardest part.
Some sample comments:
“To identify the sites which have the potential to develop.”
“Trying to find a place that can be developed into four townhouses and with a healthy profit margin.”
“Struggling to widen the network of site finders who are willing to work with a small developer looking for smaller size projects.”
“Being able to search with very specific criteria. No sites offer that functionality. It's like using a hammer to build ships inside glass bottles.”
“Prices are becoming unaffordable in the areas I operate in and bigger developers who have the capacity to land bank are buying and holding.”
A close second major challenge was being able to run quick and accurate feasibilities.
Many developers have a lot of potential sites come across their desk, but it takes significant time to assess each site.
Especially for small developers without large analyst teams, it’s a real challenge.
Another common challenge in this category involved finding accurate current market, sales and construction cost data.
Developers said that listing and sold prices were often out of date and median prices didn’t reflect the premium that new dwellings command. Having to go to many different websites and disparate information sources was another complaint.
Some sample comments:
“Running feasibility studies tend to take lots of my time. By the time I have completed my feasibility that place has been bought by another developer.”
“Acquiring accurate costings for project builds, having tight feasos, knowing how to value land/property where no known data/up-to-date data is available”
“Compiling all the info into one place, not having to bounce between 5 sites and 5 screens. Having complicated documentation and key indicators, quickly at my disposal. Layers that have state and local draft planning, over lays that identify state housing and news articles on the local area.”
“Quickly and easily obtaining current and relevant information relating to property details”
“Finding sales data of development sites. Property platforms in many cases does not save the sales data of the site acquisition. The listed sales prices will be the ones of subdivided units or blocks of land.”
“Insufficient Information on the local markets — information that focuses on the suburb / catchment etc.”
“Using realistic revenue figures to assess the residual land value which drive the go/no go decisions.”
No surprise here. With the downturn in the property market, the royal commission and just general pessimism, it’s been harder to secure bank construction finance.
Many developers have turned to private financiers, family offices and mezzanine lenders.
Some sample comments:
“Bank's tightening on construction lending.”
“Increased hurdle rate in valuation is bringing residual land value down. And developers can risk making too high an offer.”
“Finance availability, purchasers for off-the-plan.”
So there you have it!
At Archistar, our software helps developers find sites faster and conduct speedy, accurate feasibilities.
Click here to start a free trial and experience it for yourself.
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