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Residential Property is the biggest source of wealth for most Australian households so it is important to understand what’s happening in the housing market, especially in a time of tremendous uncertainty. At the start of 2021, the residential property markets experienced a soaring price growth around Australia’s capital cities with Sydney, in particular, showing an upturn in housing prices.
Is Covid the reason why property prices are going up?
The answer is No, the biggest reason why property prices are spiking is because of the slowdown in housing approvals.
Approval rates have declined and if this continues for two or three more years, construction and completions will plummet. This will cause not only delay but also an enormous amount of money and that’s exactly what is happening. There’s no doubt that these planning issues are causing the rise of housing prices around Australia. Additionally, the availability of money (plus APRA tightening controls) have all had an impact on bumping up prices.
The boost of household demand has skyrocketed the price of materials and labour, squeezing the budgets of home-buyers and renovators. Real estate investors are seeing a huge surge in construction costs. And there are a number of key building materials that are driving prices up on a whole. Builders had experienced the costs of frames rise from $11,500 to $12,160, steel for slabs jump 12% in “the last 90 days and landscape supplies soar 15%.
When the Home builder grant was introduced, there were 75,143 applications that were lodged in 2020-2021, with most applications for new builds coming from Victoria (17,382), Queensland (13,507) or WA (11,141). This has attracted not only First Home Buyers but also buyers wanting to buy their home or renovate giving the construction industry a much needed boost to stimulate the economy. Demand for the grant exceeded government forecasts and prompted an extension until March 2021 at a lower rate of $15,000. The recent increase in the cost of building materials affected many small builders saying they missed out on the scheme but were nonetheless stung by rising input prices as a result of surging demand.
Building your dream home or investing in property is a thrilling journey. For this reason, you want to make sure every aspect goes to plan and this all begins with your building contract.
When it comes to residential building, there are two main types of contracts – fixed price and cost-plus. A fixed price contract will give you exact costing of the total build before the works begin. It’s a fixed lump sum that cannot be changed – it means that your payment amount does not depend on resources used or time expended. One of the best parts of a fixed price contract is that there are no tricky costs or surprise hidden charges involved. A fixed price contract will protect you from these nasty surprises.
In contrast, a cost-plus contract is where the final cost is not determined at the time of contract signing. It basically means that your builder will give you a reasonable estimate for the job plus an additional estimate to cover expenses that have not yet been determined. When you build with a cost-plus contract, the price can increase according to the actual cost of production or market fluctuations.
Naturally, a fixed price contract is preferable as they know what they are up for from the very beginning.
Now that the real estate market has truly bounced back in almost every major Australian city, many of us are looking towards investing in property and asking ourselves; “invest now or wait”? So, is now a good time to invest in Australia’s booming property market?
Right now, a newly built residential home will cost buyers about $36,000 more on average to purchase. Higher building costs are creating a strenuous housing market for buyers and young investors to navigate. Real estate investors in the residential space take more advantage as they have more room to pay up than the typical buyer.
In the long run, there are higher chances that the demand for real estate could soar more than we expect. Investors will have to crunch their numbers and assess opportunities individually. In time, the cost of building materials should begin to come down as supply chains are able to catch up with demand. But things could take quite some time to normalize.
Furthermore, even once building materials reduce in price, builders may not be so quick to pass those savings onwards. Inflated construction costs for new builds could be here to stay a while in both the residential and commercial real estate space. All in all, now is a unique time to look into a property investment in Australia. Property prices are increasing; it’s set to be a tremendous year in the property market!
Real estate has been the best performing investment in modern history. A strategy designed to build your wealth. For anyone considering investing in property, now is the right time. As One Central Property only works with builders who have a true fixed price “Turn Key” build contract to avoid hidden surprises. We are here for you to help make your decision and guide you towards investing.
Our team will work with you 1-on-1 to firstly understand your financial situation then create a tailored investment plan specifically towards your future goals. Speak with a dedicated property consultant today and discover how our experts help guide you through all those obstacles that you’ll face during your property journey by booking a Property Strategy Session with us today!
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