HomeBuilder long lead times, tight time frames mean little help for apartment developers

Apartment developers fear they have been left out of the Morrison government’s scheme to stimulate homebuilding.

New home sales are down net 50 per cent, with apartment developments likely to be faring worse. Picture: The Guthrie Project

Apartment developers fear they have been left out in the cold by the Morrison government’s scheme to stimulate homebuilding with the industry saying the grants may not help much as projects stall in the face of the coronavirus crisis.

Unit developers are facing price drops of up to 20 per cent at the top end and kick starting high rise projects is critical to getting momentum back into the market.

Apartment kingpin Harry Triguboff warned on Thursday that luxury units had the largest falls with a smaller fall off at the lower and medium level.

The federal government is looking to spark activity via its HomeBuilder stimulus package, that provides a $25,000 grant for new housing and renovations.

While the Property Council of Australia welcomed the program, saying it would help stimulate confidence and save jobs in the residential construction sector, it said the industry was in a fragile state.

“Demand for new housing construction was threatening to fall off a cliff over the next six months. This new scheme will help switch on sentiment and save jobs at a critical time for the economy,” PCA chief executive Ken Morrison said.

But Mr Morrison cautioned that the scheme would provide limited support to new apartment construction given the requirement to start building within three months of a contract signing and the longer lead times normally required to start building.

“It will be important to maximise the volume of jobs saved over coming months and we look forward to working with the government on its implementation and design,” he said.

Tight time frames

The industry is worried that no new apartment towers will be kicked off due to the tight time frames and the PCA is pushing for the government to extend the time from contract to works to start to six months.

House and land developers are also worried about titling delays that are handled at the state level, where it can take longer than three months to arrange. The PCA’s Mr Morrison urged that these processes be expedited.

Listed developers Stockland and Mirvac have run hard ahead of the announcement but Macquarie Equities analysts also warned the package could have a limited impact.

“The key issue for residential developers, is the time constraint where construction must commence within three months post contract date. If a contract is signed today for new land, the registering and servicing must be completed inside three months for the homebuilding to commence,” Macquarie said.

The analyst said in practice, there can often be a time lag and said that developers that would benefit are those that had current inventory or could commence construction in a short period of time.

“While we view any stimulus to the housing construction sector as a positive, given the time constraints our initial review indicates a softer impact for residential developers than the GFC package,” Macquarie said.

Stockland chief executive Mark Steinert said the $25,000 grant was a powerful stimulus measure to help revive the Australian economy and support around a million construction jobs across the country.

“The scheme complements existing state and territory homebuyer grants currently in place, and will directly help more Australians realise their dream of home ownership,” he said.

The Housing Industry Association’s chief economist Tim Reardon warned this week that pressure on the home construction sector would last several years.

“I don’t think it (a recession) will have a more detrimental effect on the market but it is just the first shock to the economy. The second will be the impact of unemployment and the third will be the contraction of home building on the broader economy.”

Mr Reardon said new home sales are down net 50 per cent, with apartment developments likely to be faring worse.

“We’ve seen the commencement of the last apartment project for the foreseeable future. The withdrawal of migration and low consumer confidence means it is unlikely any new project is going to gain financial approval at the moment,” he said.