Developers in South East Queensland faced with the double whammy of increased construction costs and a challenging lending market are shifting their focus to lower risk projects, says construction finance group HoldenCAPITAL.
The stricter lending regime from the big banks and increased costs is forcing many developers to go for boutique apartment projects and townhouses in the middle ring suburbs of the Brisbane CBD as high rise inner-city apartment projects come under increasing cost pressures, according to HoldenCAPITAL director Daniel Holden.
“Developers are finding construction costs have risen significantly for some projects during the planning stages and this has had a severe impact of forecast profit margins," he said.
“HoldenCAPITAL has had a surge of inquiry from developers seeking funding for that type of product,” he added in reference to boutique apartment and townhouse developments.
Leading Queensland quantity surveying and construction experts firm Mitchell Brandtman partner, Darryl Bird, said construction costs rose about five per cent over the past year with a similar trend expected through the remainder of 2016.
“Construction cost increases of this scale, combined with a distinct shift in the development product mix and amenity, have seen the cost per unit rates for inner city apartments soar,” Bird said.
“In a market where there is little sign of sales price growth, these changes are significantly impacting project feasibilities. However, we are continuing to see new projects that still stack up from both a market and a finance risk perspective."
Brisbane-based HoldenCAPITAL, which specialises in deal structuring and the sourcing of debt and equity solutions, was named best commercial broker in Australia at the 2016 Better Business Awards.