The global credit crunch is starting to bite deep into Australia’s residential development sector, with many new projects still in jeopardy, according to research from property and construction consultants Davis Langdon.
Davis Langdon’s Tender Level Index for residential apartments shows that building approvals are down nationally, in spite of a shortfall of some 30,000 dwellings a year relative to demand.
The tender index has shown that construction prices associated with high rise residential projects across Australia have increased by 7.4 percent over the past 12 months, and further increases are expected in the coming year.
Davis Langdon’s national research manager, Rachel Kelloway, said the property and construction industry was currently facing considerable uncertainty.
"Access to credit is becoming increasingly difficult, so while other project fundamentals might stack up, some new projects are still in jeopardy," she said.
"We see the current holding pattern for interest rates as a small relief in the current climate."
In Queensland, major contractors and subcontractors are struggling to find resources and supply prices have jumped significantly – with more rises looming.
Despite the current supply shortage and increasing rents, the Sydney residential sector is yet to pick up, while in Melbourne ideal market conditions experienced earlier this year have been dampened by interest rate increases.
Developers targeting the first home buyer market have been hit hardest and hardened investors have also lost confidence.
"Small developers are downsizing their activities and the projects which have been recently announced are located in prominent locations with high price tags," said Ms Kelloway.
"The tightening of the credit market has left some projects hamstrung for funds and this lack of available funds will certainly see less development work ahead.
"Recent price increases of many structural items caused by world demand are now affecting the local market, and at the same time sub-contractor’s prices are being squeezed as there is significant pressure on them for increased wages to cover the cost of living."
Nationally, the Davis Langdon Tender Indices recorded increases of 7.4 percent across the past 12 months, with the upcoming 12 months expected to remain above 6 percent.
