Defiant Developers Brace for Pain

Glass-half-full developers are looking beyond the immediate pain of inflation rises and decreased spending capacity to the future of development.

Despite challenging economic forecasts, developers including Crown Group founder Iwan Sunito and build-to-rent specialist Jason Goldsworthy were optimistic at Thursday’s The Urban Developer Australian Property Outlook event in Sydney.

Partner and chief economist at KPMG Australia Dr Brendan Rynne said at the event that there would be difficult times ahead, with inflation and interest rises compounding decreased spending activity. 

An “overstimulated economy” due to years of low interest rates put the market in a difficult position, he told the audience.

With many people set to revert to variable mortgage rates in the next year an estimated $60 billion will be removed from the economy, he said. 

As a result of these macroeconomic issues, developers should be focused on land banking in the short term, in preparation for a return to development growth, he said.

However, while the outlook seems dire, developers are prepared to rise to the challenge. 

Alongside Centuria's head of development André Bali, Sunito, whose company One Global launched a $450 million four-tower project last year, highlighted a major opportunity for developers in the coming year during a panel discussion, hosted by The Urban Developer managing editor Taryn Paris, during the event.

“Buying powers, especially in areas like the student market, that’s really where we’re seeing [growth]. More students are coming to Sydney and this will drive a lot of demand,” he said.

“Forty thousand students are coming into the country every year—they are the ones that have the biggest buying power out of the market.”

Fellow panellist and Novus co-founder Jason Goldsworthy said that new offerings such as those in the build-to-rent sector had potential even in a difficult market.

“Fundamentally we’re seeing affordability pressures, demographic shifts in Australia… [but with build-to-rent], you’re creating a product that has come at a time in Australia where it has become increasingly hard to buy your own house,” he said.

It will provide a “stable and consistent supply of housing” and has a “bright future in Australia”, he said, as lenders see proof-of-concept developments in the market.

▲ KPMG's Dr Brendan Rynne at the Property and Economic Outlook event in Sydney.

Goldsworthy said that there were a few transactions due to close out in the coming months, on top of projects in 2022, such as Novus’ foray into Parramatta with a new build-to-rent tower.

[They] will solidify the sector and cement its importance to the space,” he said.

“It’s had a big question mark in the past couple of years… It’s hard to get the economics to work.

“Adding a premium to your rent, it doesn’t work in every location, you need a location where it’s a nice equation of cost of land and a high rental price per apartment. 

“But you’ve seen these assets come to market. Tenant demand is there. If the quality offering is right and if there’s more off overseas capital [this will] move it forward in 2023.”

The Urban Developer presents its annual flagship in-person Australian Property and Economic Outlook series in Sydney, Brisbane and Melbourne.

Brisbane | Thursday 16 February - click here
Melbourne | Thursday 23 February - click here