As investors stare down the challenges of apartments in an uncertain market, savvy builders are already looking to new opportunities.
For the three months of June 2017, July 2017 and August 2017, ABS data shows seasonally adjusted year-on-year declines in private sector dwellings excluding house approvals of -6.6% , -29.5% and -29.2% respectively. During the same period private sector house approvals were relatively level year-on-year at 1.4%i, 2.3%ii and 3.1%iii. The fortunes of the apartment market have shifted dramatically.
The impact of this change will be felt over the next year as those approvals turn to real projects and, eventually, completed apartment blocks. Beyond that, however, builders may need to look to other types of projects - and the good money is on big projects like aged-care homes, childcare facilities, and public infrastructure.
The opportunities in public infrastructure are particularly significant, although there is a renewed focus on improved planning, reduced bureaucracy and retaining good staff - factors that were credited in a recent US Project Management Institute (PMI) report with wasting $108m for every $1b spent on infrastructure in Australia. The report placed Australia near the bottom of the heap when it came to building efficiency despite noting recent performance improvements, with India leading the pack at $73m in waste per $1b and Europe the worst at $131m.
A Productivity Commission Inquiry into public infrastructure recommended improvements in institutional and governance arrangements; better project planning and prioritisation; new public and private financing models; cost reduction through better project delivery; and reviews of labour and construction markets.
This is where your building company comes in. These findings confirm that the government is hungry for cost-effective builders. Companies with a history of efficient delivery in construction projects should look to leverage their past successes into lucrative new opportunities as state governments push ahead with major infrastructure construction projects.
Melbourne's $11b Metro Rail Tunnel, for example, has created more than 1000 jobs already and this number is expected to near 7000 by the time the work is done in 2026. A mooted $7b third airport would create thousands more. And NSW's $72.7b infrastructure splash - helped, ironically, by the massive stamp-duty windfall from sales of properties - has created opportunities as part of multi-billion-dollar projects addressing transport, freight, and second-airport requirements.
If you prefer smaller and more intimate projects, consider opportunities in service-oriented projects that are tied to apartment-like multi-dwelling units. For example, strong demand and private-sector expansion have driven companies like aged care operator Arcare to expand its portfolio from 2600 beds in 27 facilities, to 4000 beds by the end of next year. Childcare facilities are also expanding, with an expansion from the 5900 long day care centres in 2010 to more than 6800 in 2016 and more on the way all the time.
Tight supply has kept Australian cities at or near the top of global housing unaffordability leader boards for years. However, consensus around a looming rebalancing of supply and demand has grown and slowing construction approvals suggest that investors and builders are already adapting their long-term planning to reflect this new market reality. To make sure you're not caught out, explore your opportunities and start reviewing your long-term planning now.
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-  ABS 2017, 8731.0 Building Approvals – June 2017, http://www.abs.gov.au/AUSSTATS/[email protected]/allprimarymainfeatures/EE49C0603ACE2D1FCA25818B0017A590?opendocument, viewed 13 October 2017.
-  ABS 2017, 8731.0 Building Approvals – July 2017http://www.abs.gov.au/AUSSTATS/[email protected]/allprimarymainfeatures/1F181B5BF1771916CA2581AA001855EA?opendocument viewed 13 October 2017.
-  ABS 2017, 8731.0 Building Approvals – August 2017http://www.abs.gov.au/AUSSTATS/[email protected]/allprimarymainfeatures/0545FFC6A101264DCA25719F007F6F1F?opendocument viewed 13 October 2017.
-  Ryan, P. 2017, Billions wasted on infrastructure projects from bad planning, bureaucracy, ABC, http://www.abc.net.au/news/2017-02-08/billions-wasted-on-infrastructure-projects-from-bad-planning/8251836, viewed 7 August 2017.
-  Department of Infrastructure and Regional Development, Australian Government Response: Productivity Commission Inquiry Report into Public Infrastructure, Australian Government, https://infrastructure.gov.au/infrastructure/publications/files/Productivity_Commission_Inquiry_Report_into_Public_Infrastructure.pdf, viewed 7 August 2017.
-  Chalkley-Rhoden, S. 2017, Melbourne Metro Rail Tunnel project to create 7,000 jobs, Daniel Andrews says, ABC, http://www.abc.net.au/news/2017-07-23/melbourne-metro-rail-tunnel-project-to-create-7000-jobs/8735520, viewed 7 August 2017.
-  Hatch, P. 2017, Backing secured for major airport serving Melbourne's south-east, The Sydney Morning Herald, http://www.smh.com.au/business/aviation/backing-secured-for-major-airport-serving-melbournes-southeast-20170703-gx3efu.html, viewed 7 August 2017.
-  NSW Budget 2017-18, 21st century infrastructure and roads to connect our state, NSW Government, https://www.budget.nsw.gov.au/budget-overview/budget-glance/21st-century-infrastructure-and-roads-connect-our-state, viewed 7 August 2017.
-  2016, Arcare to expand aged care facilities nationwide, The Australian, http://www.theaustralian.com.au/business/property/arcare-to-expand-aged-care-facilities-nationwide/news-story/8e03c543bad21a417427a5003f0891b5, viewed 7 August 2017.
-  Munro, K. 2016, Boom time for corporate childcare in Australia, The Sydney Morning Herald, http://www.smh.com.au/national/education/boom-time-for-corporate-childcare-in-australia-20161109-gslgx2.html, viewed 7 August 2017.
-  Demographia 2016, 13th Annual Demographia International Housing Affordability Survey: 2017, http://www.demographia.com/dhi.pdf, viewed 7 August 2017.