The media are currently full of real estate “Doom and Dark” – real estate reserves and arrears have risen and real estate prices have fallen…. it is almost as if the “sky is about to fall”! In this situation, many real estate developers and real estate investors are generally leaving the market – and for those thinking of starting in real estate development, these are indeed frightening times.
What seems like the worst time to get into real estate development can actually be the best time. Successful real estate developers today realize that they can use the time to their advantage – their real estate development projects will typically not be saleable or rentable 2 to 4 years after their inception. So if they have bought well, they are less likely to be affected by the economic situation at the time of purchasing their property development location.
In fact, a weak market is a property developer’s paradise, because a weak market is a buyer’s market, and one of the first steps to any property development project is to secure a viable property development location on the best possible terms.
Although we know that the real estate development business is cyclical and many parts of the world are in a real estate downturn, we also know from history that knowledgeable real estate developers are successful in every market – falling, flat or rising.
We are working on what we believe the economic conditions will be in 12 to 36 months. In fact, we are still active in the market ourselves and are seeking Council approval for a number of real estate development projects. This gives us the opportunity to act quickly and build our approved property development projects when the market gets going.
In our opinion, the following market signals are some of the key factors that will lead to increased future opportunities, especially for property developers:
– Increased demand for housing. In March 2008, the leading Australian economic forecaster, BIS Shrapnel Chief Economist Dr Frank Gelber, argued that housing prices across Australia will rise by 30% to 40% over the next five years as a result of the built up housing shortage.
– The current federal government has declared that it will work towards increasing the affordability of housing and has begun to announce incentives including tax credits of $6,000 a year if the building is leased at 20% below market rent.
– We believe that in the short to medium term more and more people will need the rental accommodation we have planned. This is either due to financial stress (cannot afford to buy a home) and/or demographic trends (including Gen-Ys who are less likely to buy property).
Even though our “crystal ball” is wrong, we know we have the resources to hold real estate development space in the event of further market volatility, and rising rents will certainly help!
We believe this is a golden time to act – perhaps a unique opportunity in a generation. Maybe it’s not the time to sell completed real estate development projects right now, but it’s certainly a good opportunity to secure the development site and get approval for development planning. Now this strategy is not for everyone – you must have the necessary resources to maintain the development site and especially the knowledge of real estate development to take advantage of these opportunities.