Marshall White Projects Newsletter Edition 27

Projects Review

A Word From Our Directors

January this year saw Marshall White Projects celebrate its first decade for our off the plan sales and marketing business.

We paused (briefly) to look back at our success, as well as the challenges and acknowledge our loyal clients and customers. These have been people from all walks of life, from all parts of the globe, that have greatly assisted us in achieving our goals and ambitions.

We've all seen great times (everybody fondly remembers 2017) we've collectively struggled through tough times, such as the challenges of COVID which still lingers today as a constant reminder to ‘make hay whilst the sun shines’.

Having now successfully worked through over two hundred and fifty Townhouse and Apartment Projects, we’ve now been able to develop a keen sense of what works in the marketplace of today – and just as importantly, what doesn’t.

Our Projects business was established with a simple brief of keeping out of the CBD, rather focusing on Melbourne’s wealth belt of Bayside, Stonnington and Boroondara which at the time centered around our first three office locations (we’ve just proudly opened our tenth).

Upon starting, we soon realised that our procedures and processes had to evolve if we were to follow clients into locations around Melbourne where Marshall White had no front of mind recognition (and probably still don’t). Pleasingly for the right project, in the right location, it's proven to be both highly successful and profitable for all parties involved.

Since 2013, our dedicated Projects sales team have met with over 17,300 potential purchasers looking to own an off the plan Apartment or Townhouse with prices ranging from a serviced apartment in Hawthorn for $115,000 to a glorious penthouse apartment in Armadale for $15,000,000.

From these valuable interactions we have assisted our customers to own over $3.65 billion worth of brand-new property in which they now live or investment.

A number of State and Federal Government initiatives have been implemented during this same period, however, very little has been done to assist the empty nester or

downsizer to transition from their existing family home to a low maintenance alternative. With less concern around rising interest rates, this significant buying group’s anxiety results from the perceived state of the residential property market, specifically towards the increasing price difference between their family home at the time of sale and their new purchase come settlement day.

To this, we have seen an increased tendency for the empty nester to be risk adverse. Whilst most still wish to secure a property prior to selling their current home, a greater number will purchase today and then immediately sell, ensuring they transact each end of the deal within the same real estate market. Making two moves, rather than punt the state of the Real Estate market within twelve to eighteen months’ time, now seems a safer bet for more people than ever before.

Throughout the last decade our average price for our off the plan sales has grown from a modest $751,000 to now over $1.25 million.

Whilst we've become more selective as to what we do (and don't) take on, it’s been the unprecedented rise in Melbourne property prices over the last ten years that has been to the benefit of all who jumped in early.

Without our valued clients, and the thousands of purchasers who have readily gone ahead without the ability to ‘touch and feel’ a finished product, we quite simply wouldn't have survived the journey. Assuredly, without the support of these groups at both ends of the transaction, then all of us here at Marshall White Projects would be doing something else far less exciting. We now look forward to the next decade and beyond, with the hope that the eighteen good people who work at Marshall White Projects and our clients and customers continue the journey with us as well.

With many thanks and much gratitude.

Mark Dayman - Director

T 85642387 M 0409 342 462

mark.dayman@marshallwhite.com.au

Leonard Teplin - Director

T 85642318 M 0402 431 657

leonard.teplin@marshallwhite.com.au

Spotlight

Yates Sales Administration

Growing up with a property developer father, Jessie Yates has inherited a passion for and dedication to new developments. For as long as she can remember, Jessie visited her father’s property developments in all stages of build, providing her with the ideal grounding for her role in Sales Administration with our Projects team.

With an impressive background in Theatre and Performing Arts, living and performing in Japan, studying in the UK at the London Academy of Music and Dramatic Art (BA Hons), working as an actor, and then as a drama teacher, Jessie carries the resilience and strength gained from living overseas into every aspect of her life. Creative pursuits have rendered Jessie with a flexible and adaptable demeanour, which serves her well in the dynamic world of real estate.

Jessie credits the supportive Projects team with encouraging her to grow within her career, and she embraces a positive ‘can do’ attitude across all areas of her role, engaging her enthusiastic personality to establish and nurture strong relationships with clients.

Hams Director

Known for his ability to create sales at the highest level, over the last decade Ross has been involved in some of Melbourne’s most iconic and successful off the plan residential developments.

With his unwavering client-centred focus on selling Melbourne’s most luxurious off-the-plan residences, Ross Hams is recognised industry-wide as the go to agent for some of Australia’s largest public and private companies.

Outside of Real Estate, family and sport are Ross’ driving forces. Ross, a former gym owner, and lawyer wife Jo have three beautiful children, and they are all sports and fitness fanatics. Basketball is number one sport at the Hams’ Warrandyte family home, and Ross plays, supports and coaches his kids’ teams and is an avid fan of SE Melbourne Phoenix and the LA Lakers

Kierra Hagedorn Partner

A driven and compassionate Partner, Kierra has grown a stellar reputation for outstanding results and exceptional customer service. Kierra’s process-driven approach and excellent communication skills complement an innate attention to detail and genuine care for each person she encounters.

A firm believer in spending as much time as necessary to gain a comprehensive understanding of what her clients seek in a new home, she is well-positioned to achieve tailored outcomes.

Kierra relishes the opportunity to forge strong relationships and connections with clients and colleagues alike. Having spent several years of her career as an integral part of Australia’s top performing real estate team helping with over 800 sales and settlements, Kierra has an enviable depth of knowledge of the real estate industry.

Jessie

Ross

Project

Project Mattone

Project Glenholm

1975 Malvern Road, Glen Iris

The property construction industry in 2023.

Written by Rotem Rotenberg, Cobild, (03) 9827 1217 | www.cobild.com.au

The past three years have been a rollercoaster that we have all been riding the ups and downs together. The property and construction industry have had to embrace the challenges faced, and as an industry we always find solutions. One of those challenges, has been the increased construction costs over the past 12-18 months. The relative inflationary pressure, and supply chain challenges being faced globally has had a compounding and substantial effect on the construction industry and accordingly the financial viability of some projects.

Typically construction contracts are entered into between the Principal and Contractor, using an amended Design and Construction contracts (AS4300 or AS4902). These contracts place the majority of the risk on the Contractor. In these inflationary times, it means the Contractor bears the risk of

supply of materials, as well the rise and falls of costs that materialize during the term of the construction contract. Subsequently this risk is distributed to sub-contractors where possible.

For companies that have been tinkering on the border line of solvency, these past 18 months have tipped some of them over the edge into ‘the valley of death’, and for other companies like Cobild, they have been able to leverage relationships across the entire ecosystem to come out stronger.

CONSTRUCTION COSTS CAN BE BROKEN DOWN INTO THREE BUCKETS:

1 2 3

Trade costs (traditional sub-contractor prices)

Material costs

These past 18 months have seen a rise in all three categories, the total impact has been an increase of between 16-20% on the overall cost of construction.

Let’s explore these in more detail.

TRADE COSTS

The industry’s (and all industries) reality is that yesterday’s price is not today’s price, and accordingly the market has shifted, yielding the most dramatic change that I have seen in my time in construction. Buying a cup of coffee and a sandwich is more expensive a year ago than it is today.

The challenge has been compounding, with cost escalation for material and labour, and moreover the ability to get the right number of trades on site to deliver the program.

Unfortunately, we have seen trades come unstuck across the industry with the rising costs and go into liquidation at the eleventh hour on multiple projects. These were great people who had exceptional business, who just couldn’t manage the changing landscape – they made poor decisions, and the impacts were felt this year. This trend has been identified across all builders in every market segment – from your builder who is working out of his van, to the top tier builders in Australia and globally.

Trades are passing on 100% of all cost escalation to Builders, and this is why new projects are seeing substantial changes in construction costs. For live contracted projects Builders have had to mitigate these costs as much as possible by leveraging relationships built over years, offer better payment terms, and sharing the cost escalation where viable. The market landscape has shifted and if you are in business, and still stuck on pre-covid construction rates you are kidding yourself on getting a project off the ground.

As a business we have absorbed these cost increases on the contracts that were on foot and signed in 2021 and early 2022. We are in the long game, and accordingly this gives us clarity that after so many good years in our industry, a couple of challenging years is inevitable - that’s the reality of being in business.

With the ever-changing market, a partnership approach and open discussions around cost escalations with our trades, has been the only way to maintain momentum on projects.

MATERIAL COSTS

Suppliers have had to work closely with contractors and their clients to provide goods. Freight has increased astronomically over the past 18 months with container pricing rising from $USD2,000 to over $USD12,000 a container – this is reverting (refer to the global index online). We’ve also seen considerable shipping delays on goods, for example, appliances taking up to 18 months to arrive – these are new problems our industry is have having to solve. Builders have been bearing the cost of shipping, using international air freight, or simply working with clients and consultants to find alternative products that can be supplied on time - everyone has had to band together to make this a reality.

PRELIMINARY COSTS

It has been well publicized that human capital globally has been the major shortage. Our borders have been closed for business, and accordingly this has driven up the salaries across the construction industry, and subsequently increasing a major input of costs for preliminaries. ‘A’ talent within the industry is few and far between right now so word of advice is take care of your people! Protracted programs - Pre-covid, program was a science. We could forecast the number of people required each day on our construction sites, and measure the probability of achieving our programs with our clients. 2022 started with mandatory isolation of seven days for close contacts, this was a disaster for the industry – at no point could you program with certainty when people would attend site or not. A great example of this, our main joiner was down to a workforce of one third of his production staff, and that doesn’t mean you’re at 1/3 capacity, its more like 20-25% of capacity.

These impacts are now subsiding and we can see light at the end of the tunnel, and numbers on our construction sites are increasing.

Further to this, substantial payouts from insurance companies over the past 5 years from the Lacross Fire, Opeal Tower, and now the floods…insurance premiums have increased substantially, and just this next review period 10-15%, and potentially more pending your claims history and the companies balance sheet strength.

TENDERING – OUR DO’S AND DON’T’S

Our business has always been a relationship based business, with a clear focus on our founding value of ‘relationships for life’. This means that all our work is from repeat clients or all referred work. This is the best way to be in business.

Some key insights from a Builders lens if you as a prospective client are exploring tendering:

1. Ensure that you are going to a select group of 3 builders – more than this really deters builders from putting the energy into a tender. Tenders will cost a builder between $20-30K if not more

2. Does the project have funding? And have you met the financial hurdles?

3. Completed your due diligence with your Financier on the ability for the bank to back

4. Visit their projects – “your eyes don’t lie”

2023 AND BEYOND

We are confident that construction costs will stabilise in the 2023, and the pressure on supply chain and labour shortages will subside. It is evident that some projects are not starting and the appetite from trades to price projects has started to come back, big caveat here – it is contingent on the number of infrastructure projects that continue, and opening up of the borders to allow more immigrants into the country that will add value to the entire economy.

My five key take aways over the past 12-18 months:

1. Always partner with the right people (across the entire supply chain)

2. Communications is key – over communicate

3. Invest in your people – they are the soul and life blood of a business

4. Things are turbulent, always have a Plan B, C, D, E….Z

5. Be resilient – don’t let things get you down, if you get knocked down jump up and go again!

Rightsizing towards luxury apartment living is gaining pace among the over 55s.

Written by Sue Williams | www.afr.com

What's causing disruptions to the supply of building materials?

Charter Keck Cramer release the latest insights including an update on construction costs.

It’s not so much upsizing or downsizing; it’s rightsizing that’s the big trend in the residential property market – and suddenly it seems it’s happening everywhere.

It was ultimately the sheer drudgery of having to clean and maintain a big fivebedroom family house that did it for Jenny Viglianti and her husband Frank.

They had loved their home, having brought up their three daughters there and now often having a selection of their 11 grandchildren to stay. But finally , enough was enough.

“For years, I was getting fed up with all the housework it involved,” says Jenny, a retired nurse consultant. “It was just the size of the house. And we agreed it was time for us.”

Time, that was, to rightsize: the trend that’s now seizing everyone’s imagination.

For Jenny, 67, and Frank, 69, a retired business manager, it meant selling their house in Concord in March and moving into a large two-bedroom apartment in Breakfast Point in May. And they’ve never been happier.

“I love apartment living, I absolutely love it!” says Jenny. “We were so ready for it and knew it was the right thing to do. Our children had gone, and we found we weren’t entertaining like we used to.

“We got rid of all our old furniture and bought all new and cleared out so much of the stuff you accumulate when you have a big house.

“It felt absolutely cleansing to do that. Now, while we only have two bedrooms, we have a big balcony where we can entertain, a great vista, and every lounge in the apartment is a sofa bed for anyone who wants to stay. A lot of people tell us we are so brave to have done that and that they never could, but we now have so much more time to enjoy ourselves and travel instead of looking after the house. It’s really lovely.”

Jenny and Frank are just two of the 8000 people who rightsized in the past 12 months, while currently, one in eight Australians –or more than 600,000 households – are planning to rightsize in the next year, according to research from comparison website Finder.

Then there are the 1.6 million households, on figures from Digital Finance Analytics, that are considering the same move over the next five years.

“People are getting tired of maintaining big family homes and looking after the pools and doing all the gardening and all the expenses a large property entails,” says Aaron Bassin, chief executive of Bridgit, which provides bridging loans to rightsizers. “With an increasing number of Baby Boomers [becoming empty-nesters ] and an ageing population, it means a lot of older people are now downsizing, while young families are looking at upsizing, and everyone’s thinking about rightsizing.”

When the pandemic forced us all to spend more time in our homes than ever before,

many people simply realised that their homes were no longer suited to their needs or stage of life.

Some empty-nester were finding themselves rattling around in big homes; some families with young children were squeezed into toosmall spaces, and some couples and singles found they were either paying too much for space they weren’t using or desperately needed an extra area to work from home.

Making a new home work for new circumstances is something that celebrated interior designer Alexandra Kidd specialises in. She’s just redesigned a three-bedroom apartment in a 1910 block in Kirribilli for a rightsizing couple moving from a ninebedroom house where they raised their six children.

“That can be quite a poignant emotional journey,” says Kidd. “But the gorgeous part is helping them embrace the idea that this is finally their opportunity to fulfil their wish list and relish the kind of things they might not have been able to have before with little hands and feet around.

“That could mean beautiful materials like Elba marble and luxe upholstery fabrics such as leather, velvet and silk, as well as being able to lay out spaces for their lifestyle, rather than worrying about the need for homework spaces and children’s play areas and teenage retreats. They can then maximise the space by making sure everything has its place, which is incredibly practical.”

A major report from Knight Frank, titled Rightsizing 2022, found that rightsizing Australians now dominate activity in the top 5 per cent of the country’s residential markets. They’re not necessarily downsizing, as they’re sometimes moving to bigger spaces and contributing to a major surge in high-end sales. In the first half of 2021, for instance, there was almost eight times the number of $10 million-plus apartment sales recorded than the 10-year average.

As a result, developers have started to build more three-bedroom luxury apartments to cater for those moving out of big houses and into big apartments.

“We have an ageing population that is capitalising on the sale of the family home to finance a move into a luxury apartment,” says Knight Frank head of residential research Michelle Ciesielski. “They’re looking for apartments with the rightsized proportions in terms of living areas on the same level, in the right locations and with low maintenance and lots of modern amenity.

The agency has just sold a multimilliondollar , 495-square-metre , three-bedroom apartment with Harbour Bridge views at Walsh Bay after it attracted so much rightsizer interest that a private auction was held.

Along with Crown Residences at One Barangaroo and One Sydney Harbour, it was one of the few oversized luxury apartments on the market in the city.

“Unfortunately, there’s just not enough stock,” says Adam Ross, Knight Frank associate director of residential sales, “and there’s not likely to be much more hitting the market soon. So many developers are still maximising the number of units they have

on a site, which means they’re small and not appealing to rightsizers. But the demand is there, so hopefully, they will listen.”

CBRE managing director of residential projects David Milton says rightsizers just won’t compromise on space.

“They’re probably the fastest growing sector of the market with all the Baby Boomers benefiting from house price growth, and they’re very particular and want to enjoy their lifestyle more,” he says. “They want big apartments in areas like the lower north shore and eastern suburbs where they can walk to their favourite restaurants and cafes, and good design and value.”

The same is also true of much older Australians, those at the next stage of life moving into retirement living. Today, they increasingly have the choice of rightsizing into upmarket planned communities with large apartments, pools, gyms, spas and private cinemas.

“It’s been a massive shift where this age group don’t want to compromise their standards, and they no longer have to,” says Sally Taylor, managing director of Provectus Care’s Retirement by Moran, whose lavish The Rose by Moran building in Wahroonga just won the title of the best retirement village in NSW from the Urban Development Institute of Australia.

“We’re setting the benchmark in luxurious retirement living for what is a very discerning demographic. If it’s not up to their standards, then they won’t move out of their family homes.”

But rightsizers do need to be careful about their choices, suggests Wakelin Property Advisory director Jarrod McCabe.

Research is key before plunging headlong into such a big life-changing decision. Mistakes – if they upsize into somewhere too big or downsize too small

– can be costly, with the risk of losing some of the equity in their family home.

“As well, some people do it to put themselves on a secure financial footing but moving into an apartment might not necessarily be cheaper,” he warns. “A modern apartment might be as expensive as a big old family home, and then there are the strata fees that can exceed five figures per annum, which might be hard ... on a fixed income.

“But while rightsizing can be a great thing ... we’ve had people in the past who’ve rented to make sure apartment living is right for them before they sell up,” McCabe adds.

Economic Insights: Bigger apartments over the past year.

Written by Craig James, Chief Economist and Ryan Felsman, Senior Economist | www.commsec.com.au

2021

Bigger apartments over the past year

C o m m S e c A n n u a l H o m e S i z e R e p o r t

 T h e a v e r a g e s i z e o f n e w a p a r t m e n t s h a s l i f t e d o v e r

 B u t t h e j u r y i s o u t o n w h e t h e r t h e t r e n d w i l l b e m a i n t a i n e d

 A u s t r a l i a a n d t h e U S c o n t i n u e t o b u i l d s o m e o f t h e b i g g e s t h o m e s ( a p a r t m e n t s & h o u s e s ) i n t h e w o r l d

 B u t t h e a v e r a g e s i z e o f n e w h o m e s ( h o u s e s & a p a r t m e n t s ) f e l l i n b o t h A u s t r a l i a a n d t h e U S o v e r t h e p a s t y e a r

 N e w h o u s e s i n t h e A C T a r e o n a v e r a g e t h e b i g

Overall findings

 CommSec commissioned the Australian Bureau of Statistics (ABS) to supply data on the average floor area of new homes built in Australia.

 After posting the biggest increase in 11 years during 2019/20, homes built nationally over 2020/21 were – on average – slightly smaller than the previous year. Apartments were bigger while detached houses were slightly smaller.

 The Covid-driven desire for extra living space may been reflected in bigger apartments being built. The average new apartment completed in 2020/21 was at an 11-year high of 138.3m², up 0.4 per cent over the year. By comparison, the average free-standing house completed in 2020/21 was 229.3m², down 2.9 per cent from 7-year highs. And the average new home (houses and apartments) completed over 2020/21 was 195.8 square metres, down 0.4 per cent from the 6-year high set in 2019/20.

 Queensland was notable for building bigger detached houses and apartments over 2020/21. In fact the average new home in Queensland (houses and apartments) was up 5.5 per cent to an 8-year high of 205.8 m².

 In 2020/21 the biggest new houses were built in the ACT (259.3m²); the biggest apartments were in Victoria (156.8m²); and the biggest overall homes (houses and apartments) were in Western Australia (214.8 m²).

 Data also confirmed that Australia and the US continue to build the biggest homes in the world. But importantly in both countries the average size of new homes completed fell over the past year.

 In the US, the average new home completed was 2,066 square feet or 192m², around 2 per cent smaller than the average Australian home. But the measuring methodology differs slightly between the two countries. However, based on the available survey evidence, new homes being built in Australia and the US are still notably bigger than in other countries.

IMPORTANT INFORMATION AND DISCLAIMER FOR RETAIL CLIENTS

The Economic Insights Series provides general market-related commentary on Australian macroeconomic themes that have been selected for coverage by the Commonwealth Securities Limited (CommSec) Chief Economist. Economic Insights are not intended to be investment research reports.

This report has been prepared without taking into account your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any securities or financial instruments, or as a recommendation and/or investment advice. Before acting on the information in this report, you should consider the appropriateness and suitability of the information, having regard to your own objectives, financial situation and needs and, if necessary, seek appropriate professional of financial advice.

CommSec believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made based on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by any other member of the Commonwealth Bank of Australia group of companies. CommSec is under no obligation to, and does not, update or keep current the information contained in this report. Neither Commonwealth Bank of Australia nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this report. All material presented in this report, unless specifically indicated otherwise, is under copyright of CommSec.

Economic Insights. Bigger Australian apartments over the past year

Analysis of findings

 Back in 2009/10 Australians were building the biggest homes that they had ever built. The size of the average home peaked at 218.6m², 46 per cent bigger than in the mid-1980s. Interestingly the size of US homes peaked around the same time (in fact, two years earlier).

 After falling from 2010 to 2012, home size in both the US and Australia broadly trended sideways in the past eight years. And while homes haven’t been getting much bigger in recent years, they are still notably larger than those built by previous generations.

 The average Australian free-standing house is 24 per cent bigger than the house built 30 years ago with new homes (includes apartments) 14 per cent bigger.

 The size of the average house in both Australia and the US has been falling from highs for various reasons: the increased focus on sustainability; desire for low-maintenance homes; smaller lot sizes; fewer people per home; affordability; a desire for proximity to inner cities; and energy costs.

 But after hitting 22-year lows in 2018, home size lifted before since stabilising. The average home size lifted 3.4 per cent in 2019/20 – the biggest increase in 23 years – before consolidating (down just 0.4 per cent) in 2020/21.

 While quarterly data is more volatile, national home size hit a 7-year high of 201m² in June quarter 2020 and stood at 200m² in the December quarter. Apartment size and house size also spiked higher in the June quarter, especially apartments. Apartment size spiked to 146 m² in June quarter 2020 – a record high in the 10 years of available quarterly records and a result on par with the high set 17 years ago for financial year records.

 Covid-19 may have influenced home size, although it is still relatively early days in the construction cycle. The experience with Covid-19 has certainly caused more families to look for bigger homes and caused others to add extra rooms to existing homes. More Aussies want to achieve a situation where family members are able to live, work and relax at home. No doubt, builders and architects have been quick to respond to the new demands by families.

 Prior to Covid-19, a higher proportion of Aussies had elected to live in apartments rather than detached houses. At the same time the average size of an apartment hit record lows in 2017/18. The conclusion that many Aussies appear to have reached is that apartments became too small to be truly comfortable and practical.

 New trends such as butler’s pantries, mud rooms (storage for boots, coats and wet clothing) and home theatres have also given more families justification to build bigger homes.

 There have been shifting trends in the sizes and styles of homes over the past decade and Covid-19 has been throwing another element into the mix. The big question is whether Aussies continue to embrace working from home,

Economic Insights. Bigger Australian apartments over the past year

opting to move away from apartments in, or near the CBD, in preference for a larger home in a regional or suburban ‘lifestyle’ area. Or it may be just a case that bigger apartments will be sought – either close to capital cities or in the suburbs.

Definitions: the average Australian new dwelling or home

 The Australian Bureau of Statistics (ABS) compiles the data on the average size of a new dwelling.

 The ABS defines the average floor area of a new dwelling as:

 “The floor area of a building is defined as the quantity of useable space within the dwelling (including attachments) at its completion. This figure is measured in meters squared (m²) as reported by the respondent at the final stage of construction. The boundary of the recorded floor area of a dwelling is delineated by the external perimeter of the dwelling's exterior walls. This excludes non-enclosed structures attached outside the floor area boundary such as verandahs and carports. The floor area of apartments is the total floor area of the building (including common areas and hallways) divided by the number of dwellings contained within the building.”

 “This means that:

 unenclosed carports are excluded from the calculation of floor area;

 garages, as long as they are enclosed, would be included in the floor area stated (even if unattached to the house);

 the floor area of granny flats is included in the calculation of floor area, but it would represent an additional dwelling on the site (included in the denominator of the average floor area calculation).

 There are practical limitations related to this, as councils are unlikely to strictly police the inclusions/exclusions of floor area reported by applicants.”

 The ABS provided data on houses and “other dwellings”.

 “Houses – defined as detached buildings used for long term residential purposes, consisting of only one dwelling unit and are not a result of alterations or additions to a pre-existing building.

 ‘Other dwellings’ include townhouses and flats, units and apartments.

 'Townhouses' - defined as semi-detached row or terrace houses attached in some structural way to one or more dwellings, with their own private grounds and no separate dwelling above or below.

 'Flats, units or apartments' - defined as blocks of dwellings that don't have their own private grounds and usually share a common entrance, foyer or stairwell.”

10 tips for developers to minimise settlement risk in off-the-plan sales.

Written by Ted Vlahos, (03) 9110 2900 | www.ndl.legal

With changing market conditions, including higher interest rates, increased construction costs and softening property prices, settlement risk for developers is currently a hot topic.

Pre-sale sale contracts are particularly vulnerable to settlement risk.

This is due largely to, firstly, long lead time between the day of sale and settlement (during which time purchasers’ circumstances, market conditions and government and lending policies may change).

Secondly, there are very strict statutory safeguards that apply in relation to off-the-plan contracts. These are designed to protect purchasers from the perceived risks associated with buying offthe-plan and allow purchasers to terminate their contract and obtain a refund of their deposit in certain circumstances.

So how can developers reduce the settlement risk with off-the-plan contracts and ensure settlements occur in a timely fashion? Some key tips are set out below.

GET THE MASTER CONTRACT RIGHT FROM THE OUTSET

Although it might seem obvious, accurate and compliant sale documentation is of paramount importance when planning to mitigate settlement risk.

A contract of sale should incorporate special conditions designed to give developers broad rights and limit (to the extent lawfully possible) a purchaser’s right to terminate the contract, delay settlement or seek compensation. Sale documentation should not be adopted “off-the-rack”.

Tailoring sale documentation to the specifics of a project is critical in allowing the developer to carry out the project in any way necessary and manage unforeseen outcomes, whilst minimising the risk of a purchaser becoming entitled to terminate the contract.

MAKE SURE YOUR PRE-SALES ARE “BANKABLE” FROM A CONSTRUCTION FUNDING PERSPECTIVE

Lenders are just as concerned with the settlement risks associated with off-the-plan contracts as developers, and will almost always have the pre-sale contracts vetted and qualified by the bank’s panel solicitor prior to any drawdown of funds.

Lenders have their own commercial criteria for determining whether sales contracts will be counted as “qualifying”, and it is important that you and your sales team understand what these are and that the contract and the agreed sale terms comply with that criteria. For example, most major banks now require the sunset date to be at least 12 months after the estimated date of practical completion.

This is to ensure presales are not excluded by lenders, and the work done and commission payable in achieving those sales is not wasted.

ENGAGE WITH PURCHASERS AS EARLY AND REGULARLY AS POSSIBLE

Greater cash equity provides lenders with confidence that the developer has genuine “skin in the game”. Whilst developers have recently been able to increase equity through value uplift in the site, lenders are more likely to look at true cash equity indicating the developer has more to lose and is less likely to walk-away if development issues arise.

PROACTIVELY MANAGE VALUATION RISK

Settlement risk may come from property valuations being at risk of coming lower than the contract price.

Knowing your project’s market position early is critical in managing your settlement risk. Producing valuation packs to assist valuers in their assessment of the property can be a very useful tool.

For developers and their settlement team, this is an opportunity to study the current local market, review recent sales and comparable projects. For valuers, a valuation pack that is short, clear and to the point is essential to identify key areas of importance.

5UNDERSTAND THE EXPECTATIONS OF OUTGOING MORTGAGEES

Realisation that a timely settlement is not just dependent on purchasers being ready to settle at the required time. It also depends on the readiness of all other parties, including their banks and their lawyers/ conveyancers, your lawyers/conveyancers, your discharging mortgagee(s) and their lawyers (where applicable), as well as the owners corporation(s) (where applicable –more on this below).

Being organised and implementing necessary steps at the right time will assist others in dealing with their tasks and therefore, contribute to you achieving timely settlements.

ENGAGING AN OWNERS CORPORATION MANAGER EARLY

Early engagement of your owners corporation management is important so as not the delay settlements.

Opening the communication lines between your owners corporation management, yourself as the developer, and your lawyers/ conveyancer will ensure that tasks are being progressed and all parties are on the same page.

COMPLETE STATE REVENUE OFFICE DUTIES FORMS PROMPTLY

Arrange for an authorised officer of the developer company to answer any questions pertaining to the information required to complete the State Revenue Office forms and be available to review and electronically sign the duties forms as and when invitations to sign are being sent by your lawyer/ conveyancer.

Ensure that the method of calculating duty is decided upon early on in the development and maintain a record of your figures as the development progresses. That way, when it comes time to provide those figures to your lawyer/conveyancer, you know those figures are up-to-date and accurate.

SET UP A SYSTEM FOR FINAL INSPECTIONS

Establish a system, early, for managing final inspections and bank valuations; at least 6 to 8 weeks prior to the anticipated date for lodgement of the Plan.

Notify your lawyer/conveyancer of the plan you have implemented so they can communicate this to purchasers’ lawyers/ conveyancers and their banks who often enquire on these very things.

PREPARE EARLY, FOR HOW ADJUSTMENTS WILL BE HANDLED

Decide early on whether you, as the developer, need to review the adjustments. An alternative to reviewing all sets of adjustments is to review the first few only and if you are happy with those, the remaining sets of adjustments for other lots will be done similarly and/or review sets of 3 lots of adjustments randomly throughout the settlement process.

If you wish to review and approve each set of adjustments, ensure the right (authorised) person or persons are appointed to achieve a quick-turn-around for this task.

USE A LEGAL TEAM WITH EXPERIENCE AND INTIMATE KNOWLEDGE OF THE OFFTHE-PLAN INDUSTRY TO ACT ON YOUR BEHALF DURING THE SALES PROCESS.

This almost goes without saying, but engaging the right legal firm that understands both the legal and commercial issues and pressures of off-the-plan conveyancing is critical to any project.

Successful settlements – the Nine Dots way

It is clear how a bit of forward-thinking, proper preparations and planning, clear instructions and communications, cooperation and generally just being organised, can assist in a process that does not have to be as stressful as it often is. At NDL, we know how important it is for you to achieve timely settlements and we will do everything we can to assist you in achieving this for your developments.

Please reach out to Ted Vlahos and the conveyancing team at NDL should you wish to discuss your upcoming development settlement or wish to engage NDL to act for you in relation to your next development. We are here to answer your questions.

Developer Insight Series: New Apartments

Written by REA | www.realestate.com.au

Featured in: The Australian Take a long-term view on the cycle

Written by Andrew Schwartz, Group Managing Director and Co-Founder, Qualitas | www.qualitas.com.au

High rates may create a feedback loop but will not kill apartment building.

Brace yourself. In 1970, the median price of a unit in Sydney was $13,500 – the cost of a modest kitchen renovation today. Three decades later, as Sydney prepared to host the 2000 Olympics, the median price had soared to almost $260,0001.

What’s notable about the difference – apart from a remarkable return of 19 times for an astute investor – is that this 30-year period included the highest inflation and interest rates to hit Australian households in living memory.

At the start of 1990, the Reserve Bank’s cash rate target hit 17.5 per cent – a level that has never been surpassed. At that time, inflation

was running in the mid-high single digits but in the early 1970s it had spiked at an annual rate above 15 per cent during the global oil shock.

The point I am making is that, higher inflation and interest rates do not necessarily mark the death knell of demand for apartments. That’s certainly not evident from the period of 1970 to 2000 when inflation, as measured by the CPI, was more volatile than recent decades and generally ran above 5 per cent before moderating during the 1991 recession.

There were periods in those three decades when apartment development was almost non-existent, such as the 1980s. Similar to today’s conditions, this was a period of adjustment after a long, strong growth period, with less construction giving the market time to reach a new equilibrium.

But overall, the same longer-term trends that drove apartment building and prices from 1970 to 2000 are alive now – urbanisation, economic expansion (through boom-andbust cycles) and healthy population growth supported by skilled immigration.

And that’s why we have every reason to believe that construction of apartments will continue in the future. It’s about taking a longer-term perspective.

There’s no doubt that we’re in a volatile economic climate. Right now, the Australian economy is in what I would describe as an ‘inflation feedback loop’.

It’s well established that the current bout of inflation has been caused by both demand and supply side inflation.

Demand has been fuelled by the massive stimulus tipped into the economy by governments during the pandemic and the generally (surprisingly) strong consumer economy, buoyed by household confidence and 48-year low unemployment.

On the supply side, prices have been driven higher by the COVID- and weather-related disruption to local and global supply chains and by the impact of the war in Ukraine, particularly on energy prices. Labour shortages, reflecting the low unemployment and the temporary closure of our borders to students and skilled migrants, have not helped.

The result of these combined forces is inflation that has exceeded all expectations. The Consumer Price Index hit 6.1 per cent for the year to June – the highest since the Reserve Bank introduced its 2-3 per cent inflation target in the early 1990s. In an effort to fight back by cooling demand, the Reserve Bank has now raised rates five times since May and signalled more increases are going to be necessary.

The big risk is a wage-price spiral. This is where the inflation feedback loop begins its vicious and, if not addressed, unbreakable cycle. As wages go up consumer demand increases, prices rise, interest rates rise, the cost of owning property rises, rents increase to recover higher costs (they’re up a CPIbusting 10 per cent in the year to September 302) and shortage of supply – and then it all starts again with higher wage demands. It’s a like a microphone placed next to a speaker – painful.

The key questions are how the cycle is broken, and, for us, where is the real estate opportunity?

Dr Lowe, for one, recognises the key role the labour market will play in determining the outcome, warning that pay increases must be kept under control for unemployment to stay low and to avoid the central bank inflicting a hard landing.

Broadly, there are two ways to break wage inflation. Both involve increasing available labour to ease wage pressure and they are not mutually exclusive.

There’s the hard way – engineering a recession that drives up unemployment. No one would consider that a desirable outcome. A second way is to increase the pool of labour through measures such as lifting immigration numbers, which have been severely constrained during the pandemic. That is much more desirable.

In September, the Federal Government signalled its choice by announcing an increase in the permanent migration cap from 160,000 to 195,000 for this financial year to help fill immediate gaps in healthcare, infrastructure and the technology sector.

We all feel Australia is the country of choice for migrants due to its clean air and food, a sense of geopolitical security and a natural pool of energy resources far away from the war in Europe and the resulting energy crisis. But these beautiful attributes are not enough and we competes for skilled migrants with other countries, such as New Zealand and Canada. Their decision-making is based on a number of factors, which include obtaining a secure job, finding appropriate, affordable and available housing.

Ultimately, every person who comes to Australia as a skilled migrant or student will need somewhere to live and, for many, apartments will be the best option.

The problems is that the Government’s efforts to open the doors, while welcome, come at a time of chronic undersupply in the housing market, particularly rental housing with record low vacancy rates around 1 per cent, and what we expect is a temporary fall in dwelling approvals and construction activity.

Australia has underinvested in housing since the onset of COVID, for all the well-document reasons, and the only solution is another round of investment, including in high-density apartments across the fast-growing build-torent space, which will represent more than 10 per cent of all apartment building this financial year3, and traditional build-to-sell units.

History tells us that the majority of immigrants settle in the capital cities and, of those, the majority will find homes on the eastern coast. Investment in apartments will follow the demand but there is a need for multi-storey housing nationwide.

As an alternative real estate investment firm, we view property as an upfront sum to acquire the asset and then a series of cash flows over a medium-term duration. Through that lens, we see current supply imbalances, with increasing demand driven by labour issues, rising rentals (cash flows) and increasing replacement costs due to inflationary pressures.

Just like in the 1970-2000 period, there will be cycles within the longer 30-year, 19-times returns cycle. That is why it’s important as an investor to focus on the long term and try as hard as possible to avoid the noise of the day, which can create short-term distortions and feedback. I have no doubt that markets will always be cyclical, with short term volatility, but that the longer-term fundamentals will always play out well, including for apartments.

Our Unique Points of Difference

Your Own Marketing Team or Marshall White Project Marketing?

We appreciate a number of developers have in the past successfully ran their own sales team, work exclusively through their own projects and selected channels.

With 32 % of our annual sales as a result of cross referring from one project to another, the days of a cost prohibitive data base from only one or two projects is fast disappearing.

From a project’s data base of over 280,000 and a residential data base of over 460,000 we consistently generate low cost, stress free sales that can get your project moving within the shortest possible time-frame.

Most developers and other project marketers are all doing the following to generate sales;

• Work out of a dedicated display suite

• Attempt to seek out reliable referral partners, both locally and overseas

• Commission marketing designed to attract buyers to your project

Three years ago these procedures were enough to generate sufficient pre-sales to then cover debt funding, however, we are now in a newpost covid market. Strategies with the benefits of strong relationships and front of mind market presence must be leveraged to ensure a successful outcome.

The unique initiatives we’ve put in place for every client has resulted in the successful sell out of over 200 projects and counting – make your project count by calling us today.

A decade in the making Celebrating over 242 successful sell outs

The start of 2023 saw Marshall White Projects celebrate our first ten year in the business of selling and marketing off the plan projects.

During this time we’ve been honoured to work with the very best in the business. We’ve also:

• Personally met with over 17,300 off the plan purchasers

• Successfully sold through 242 off the plan projects

• Assisted off the plan purchasers to own over $3.635 Billion in brand new product

Since the inception of Marshall White Projects in 2013, we've attempted to provide an insight into the ever changing world of property development b sharing the hard earnt lessons of those in the field and generous enough to share their experieces for the betterment of their peers.

Marshall White Projects has evolved as a team, maturing in a market where buyers learn to expect more than ever before, whilest developers must work harder to achieve the same reslut.

They say knowledge is power, so we invite you to click on the button below and enjoy the resource of our first publication through to today.

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