Is Sydney's building boom yet to run its course?

Discussion in 'What to buy' started by Ricardo, 29th Jul, 2018.

Join Australia's most dynamic and respected property investment community
  1. Ricardo

    Ricardo Member

    Joined:
    17th Apr, 2018
    Posts:
    9
    Location:
    NSW
    Hello,

    With all the negative press about the housing downturn notwithstanding, some signs on ground tell me a different story. So this note is to share my observations and seek your take on this.

    The downward pressure on house price is real: in my Council area of Ryde, my observation is
    price came down by 5-10% from last year. This by and large tallies up with what the media is saying.

    The above, however, does not seem to have filtered through to the traides, and, notably, home builders.

    Allow me to offer a couple of examples:

    a) I had recently sought quotes for a small bathroom reno. In the first week, I contacted three
    tradies from the Yellow Pages. All said they would come and give me quotes; one gave a date/time while the other two promised to call before coming.

    Fast forward three weeks and nothing happened, although the guy who gave a date had the decency to let me know he can't make it but would make up another time. Didn't hear from him again.

    (An observation I feel pertinent to share with you is this: while I was calling for quotes, one guy -- who I understood to be a tiler but who also does bathoom reno -- told me he is booked for the next 12 months!)

    About six weeks later I called another set of three mobs (again, from the Yellow Pages). This time, to my pleasant surprise, all three turned up. They inspected the place, took measurements, etc, and promised to send quotes.

    One guy called up a week later and gave an outrageous figure on the phone, but won't send a written quote. The other two did not bother to follow up. As I write this, it's been four weeks of elapsed time, so I assume they are not interested in this 'small job', which, in my view, would still have been around 15k!

    b) Not long ago, a family member called asking me if I could give her a hand in shopping for a new house, a knock-down rebuild proposition which she had been thinking on-and-off for over a year (including prelim talks with mainly project builders). I said I could make it on a weekend to which she replied It's chock-a-block full in the display home place (Kellyville HomeWorld), and if I could make it on a week day instead.

    Few weeks later, I had a day off and phoned her to say I can spare a few hours.

    Off we went to have a fairly serious chat with a builder about tender / contract, costing and the like. While driving to the place, she told me that the builders are not that keen for customers, and, furthermore, the sticker price for the same house has gone up by 7-10% since last year. I found it hard to comprehend given the media coverage and my own observation of downward pressure on established home prices.

    During our conversation with the sales guy with a project builder, I couldn't sense any sign of a downturn. On the contrary, he was very confident, if not a touch overbearing, while going through pricing with us. Further, on a week day I expected the place to be much quieter than what I found, with a fair few customers/ window-shoppers milling about the place.

    Something wasn't quite adding up to me. What I am missing?

    Could it be the different demographics who build new houses (although the sales guy told us home and land packages still the rage, but lots of knock-down-rebuilders too)? Or, is it the lag time before the downturn flows on to the building industry? Or, is it some other dynamics at play here?

    Would love to hear your views on this.
     
  2. ChrisDim

    ChrisDim Well-Known Member

    Joined:
    13th Jul, 2018
    Posts:
    271
    Location:
    Sydney
    It's exactly the lag time Ricardo. I have just finished doing some renovations myself and I had a running joke that my builder (who was fantastic at his job BTW) was "charging me like a doctor"?

    Everywhere you go in Sydney you see construction... either its the owner occupiers - like me - who realised 2 or 3 years ago when there was plenty of money to go around that their property had gone up 3-400,000 and decided to upgrade OR it was the developers building for investors. Everywhere you go in Sydney is a construction zone! Not just Ryde.... St George, Lower North Shore, Eastern Suburbs... Parramatta, Inner and South West Sydney. And if it is not them, its the light rail being built everywhere (a couple of years behind schedule)..

    These projects are still going and I suspect they have another year to run. Whilst they are happening there is a shortage of tradespeople. To give you and idea, 4 months ago I was looking for internal set of stairs for my house. I called 5 manufacturers and they all told me they don't accept new customers! WHAT THE??? which business would ever would say that they don't accept new customers...???? crazy! They didn't even want to take my details in case something changed!

    It won't last for ever though. As soon as this current wave of construction runs its course in a year or two, people will have no choice but come back down to earth....
     
  3. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

    Joined:
    25th May, 2018
    Posts:
    2,407
    Location:
    Sydney
    Great thread Ricardo,

    Peak release of unit supply comes on line in 2019. However, what really matters is the pipeline of approvals, which has come down considerably. And this is what will sow the seeds for the next up tick in prices in about 2020/1.

    It has been astounding to see Sydney and Melbourne absorb the huge increase in supply with relative ease, given our growing populations. This is a double edged sword however, because any drop off in the supply of new dwellings (after 2019) will likely start to see the demand/supply equation start to tilt back in favour of sellers. And this is when prices will start to rise again. All part of the normal cycle.

    Thanks,
     
    Bris developer, Bender12 and ChrisDim like this.
  4. hobartchic

    hobartchic Well-Known Member

    Joined:
    11th Sep, 2017
    Posts:
    1,513
    Location:
    Hobart
    Lots of people aspire to a new house.
    I think the people that buy new houses are a different demographic. For a start, they tend to be OO and they tend to be either professional class or older (50 plus). When an older house tends to be the same price (as it has in recent years), a newer house is appealing. Newer houses tend to be warmer in winter, cooler in summer. They do not have the issues of maintenance and asbestos older houses have either. A rational person would buy a newer house over an older one in the current market.
    A downturn should hit older houses harder, and faster.
     
  5. RenegadeDom

    RenegadeDom Well-Known Member

    Joined:
    22nd Feb, 2016
    Posts:
    203
    Location:
    Sydney
    A rational person would purchase a newer house over an older one if all comparables are the same. You will unlikely get a new house on a similar sized block in the same location as an older house for the same price. To obtain the new house you will typically be looking at fringe suburbs on a much smaller lot than the older for the same price. From my experience in Sydney it is young OO's buying in the new estates who want that "new place" look and feel, having a fixer up doesn't seem to appeal to many these days.
     
  6. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    1,648
    Location:
    Sydney
    Its most likely that you are looking at purely the residential stuff and not the commercial stuff. Commercial is still strong with plenty of government funded projects in the pipeline.

    Builders are losing a lot of their contractors and subbies to well paying commercial jobs.
     
  7. mickyyyy

    mickyyyy Well-Known Member

    Joined:
    26th Jan, 2016
    Posts:
    867
    Location:
    Sydney
    From June 2017 to June 2018 seek new job adds showed a 3% decrease in job adds for construction
     
  8. neK

    neK Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,842
    Location:
    Sydney
    @Ricardo
    Try hipages instead of yellow pages.
    I posted my job up and got 3 calls within an hour.
    (I'm doing a bathroom Reno too, but I'm project managing, so I co-ordinate the individual trades myself)

    If you need help with the project management I can recommend someone
     
  9. Jaxon Avery

    Jaxon Avery Well-Known Member

    Joined:
    4th Sep, 2017
    Posts:
    103
    Location:
    Gold Coast
    The Australian Market overall will drop over the next 1-2 years, there will be certain markets that gain back but higher end like CBD Sydney will fall.

    there are a few very clear reasons
    1. Increase in rates
    2. the strictest lending restrictions to date in this country (in my opinion)
    3. Restrictions on foreign investment/China having its own outflow of cash issues

    there are many other factors, the one thing that can and would offset this is a lowering of the Australian dollar which stimulates growth especially in the mining sector which are some of the areas that may see some growth over the next 5 years (so many variables)
     
  10. timetoact

    timetoact Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    422
    Location:
    Sydney
    We started a plan to renovate our house late last year. Fairly straight forward reno.
    After meeting with architects, draftsman and a builder (who we know well), we have delayed our plans until prices come back to reality.

    Essentially the architect and draftsman (both seperate companies) told us that 5 years ago we would have been looking at around $2500/sqm for our reno. But in the current market (9 months ago) we would be lucky to get anyone to do it for less than $4500/sqm and likely we would be waiting for 12 months before anyone could start.
    Our builder gave us a ball park estimate which was effectively $4800k/sqm.
    The difference is well in excess of $150k.

    We have proceeded with the plans with a lot less urgency and will submit to DA in the next week or so. Once approved we will have 5 years to start building. So I am following construction activity and the signs are all pointing down. Crane index is down, new approvals down, prices are obviously down.

    Whilst the gov infa spend has a long pipeline, I think a lot (not all) of the trades for this are a bit more specialised. The main drain on tradies has been new apartment and house building. Plus as mentioned before, a lot of property owners who haven't upgraded are using new found equity to make their existing house nicer.

    All of the above will start to slow as prices fall and the new lending rules start to bite.

    So we are expecting (hoping) that in the next 2-3 years, the tables will have turned and builders will be in search of more work. All part of the cycle.
     
  11. Illusivedreams

    Illusivedreams Well-Known Member

    Joined:
    3rd Oct, 2017
    Posts:
    2,454
    Location:
    Sydney

    As above im still finding it hard to get toadies to site.

    All charging like a bull.

    But im seeing it change a little.
    I think over the next two years things will definitely change.
     
    Jaxon Avery likes this.