Not the year that was hoped for but probably more in keeping with what we had projected, which saw many projects breaking even or delivering significantly reduced profits. This reflected the tailing off of those projects impacted by the large increases in raw material costs, while the continued pressure on labour costs and availability continues to impact both directly and via supply costs associated with the industry as inflation hangs on.
This continues to put pressure on the industry with builders and particularly sub-contractors continuing to feel the pinch resulting in high levels of financial failures occurring. Hopefully those that survived the pinch, have now got profitable projects on their books and their balance sheets recovering to a position of strength.
HCP has recorded high levels of enquiry during the last half of the financial year, however it is this sticky inflation, which continues to forestall the RBA’s ability to reduce interest rates, which has also put pressure on developers looking to get their project metrics to stack up. This has seen them often forced to try and find solutions through redesigns, or recutting configurations and finishes, or simply putting the project on hold when the reality becomes apparent.
Market demand has remained relatively strong, particularly in SEQ where projects that did measure up and are underway have been well received, with days on market being relatively short. Recently published time on market statistics show that Brisbane at 23 days, Sydney 33 days and Melbourne 35 days, are providing relatively quick exit rates for completed stock provided developers are realistic.
HCP has also seen evidence of developers looking to compensate for those increases on delivery costs by holding out for values above market expectations only to suffer addition losses as the product then becomes stale.
The other common mistake that has tripped up many developers is spreading their resources, both operationally and financially. Too often we see developers who have not experienced the property cycles, taking on too many projects only to find themselves fighting multiple fires on multiple fronts and with limited financial resources, spreading your resources too thin is a recipe for disaster. This is particularly true when they are reliant in investor funds which typically dry up or look to be recouped during tough times adding to the pressures to get the job done.
None of this was totally unexpected and while it was a somewhat challenging past 12 months, for the most part we have seen our loan book cope very well with these pressures and we are confident of slightly better launch platform as we enter 25/26FY.
