By Herron Todd White
The announcement of the HomeBuilder grant on 4 June 2020 had an immediate positive impact on the volume of construction valuations completed by the Cairns office. The graph below shows a relatively steady number of instructions each month up until June 2020. There was a 33 per cent increase from May to June, a 50 per cent increase from June to July, a 28 per cent increase from July to August and we are on track for the high levels to be maintained in September
It appears that there are virtually no developed blocks of land left in Cairns that are easy to build on. Only steep sloping blocks remain and even they are generating some interest. We are seeing land prices increase up to 10 per cent in some instances which in many cases is the only increase in price since around 2018. Builders are very busy trying to lock in clients before the 31 December deadline and then start construction within three months of the contract date. Many of the buildings will need to be started in the middle of the wet season so we’re likely to see plenty of concrete slabs sitting around going mouldy in the first half of 2021. The increase in activity is widespread throughout far north Queensland including the Atherton Tablelands, Cassowary Coast and the Port Douglas and Mossman areas.
We are seeing constructions costs starting to push up with examples of increases in the range of $100 to $300 per square metre of building area compared to rates we were seeing in the first half of 2020.
When completing as if complete valuations, we don’t just add the land value to the building cost to work out what it is worth. Cost doesn’t always equal value and better value can often be found in the established home market. This is why it is sometimes difficult to support the total of the land plus the building cost when similar established homes are selling for less. It is a bit like the old saying that everybody drives a used car; it doesn’t matter what your new car cost, when you come to sell, a buyer is only interested in what it is worth compared to other cars on the market.
The HomeBuilder grant is having a similar effect to previous grants and in some instances the grant ends up being passed onto the vendor of the land (due to increased land prices) and the builder (due to increased building costs) with the buyer ending up with a similar or possibly even a larger mortgage than if the grant didn’t exist. The grant also has the effect of bringing forward demand and lessening demand to some degree for established homes which makes it more difficult to support the price of the new home.
A good outcome will be increased building activity in 2021 with any increase in the supply of land able to match demand but not result in an oversupply and continued demand from new parties wanting to build homes in 2021 once the grant finishes. A poor outcome will be an increase in the supply of land which results in an oversupply and a lack of demand for new homes in 2021 and a lack of work for builders in the second half of 2021 and into 2022.
Speak with a Cairns Mortgage Broker today.
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