Real estate and construction has always been a stalwart for the Australian economy. In good times, cranes dot our city skylines.
When times are tough, both State and Federal Government invest in infrastructure to create jobs and boost economic activity. Of course, COVID has changed the rules of the game a little. A health crisis as opposed to an economic one – social distancing, or lack thereof, has seen some sites close down and offices empty, necessitating a change in how the sector has traditionally worked. However, the demand for housing has not abated and for developers, speed to market is as important as ever.
Top trends in Real Estate & Construction
Issues impacting businesses in Real Estate & Construction
'High consequence' tax payers
The ATO has made no secret of the focus it places on the real estate sector as high consequence tax payers, given the value of widgets being traded and the tax complexities specific to the sector. Add to that the intricacies of indirect taxes such as GST and the differing rules across all States for stamp duty and land tax and it’s easy to see why businesses need assistance to get it right.
Balancing workforce management with COVID
Like all industries at present, real estate and construction sector participants are facing a staffing crisis with more work opportunities available than there are people to fill – particularly when it comes to Skilled Trades. As migration rates pick up, we look forward to increased mobility returning to the workforce and some of the pressure easing for certain trade skills. In the meantime, savvy businesses are designing around the bottlenecks and turning to existing and emerging technology to free up time and resources whilst in the process reducing human error.
High M&A volumes in the industrials sector unlikely to abate
It’s become obvious that real estate investors like industrial products. According to our 2020 Dealtracker, the industrial sector saw the highest volume of M&A activity – continuing a trend that’s been reflected over the last decade we’ve been producing this research.
Supply chains and investment delays bite
Thankfully the Foreign Investment Review Board (FIRB) returned to business-as-usual on 1 January 2021. Commercial deals are still occurring, however the flow of foreign investment remains stifled while investors can’t travel to visit potential investment sites. Compounding the difficulty accessing international investment are significant challenges with supply chain. The real estate & construction sector is one link in a long supply chain, and with workforces around the world struggling to keep up with demand, those supply chains have become sluggish. Considering lead times have blown well out, it’s becoming increasingly common for contractors to place orders at the time of tendering for big jobs to lock in current prices, ensuring they can meet cost estimates and timeframes. It’s an additional risk many are having to take, but one that can bite if the contract doesn’t come through.
Build-to-Rent a trend to watch
With the growth in the housing marketing continuing, affordability remains an issue with people delaying when they purchase, or actively choosing to rent as the best option for them. However in recent years, tax policy constraints have impacted the investor market and in many regions there aren’t enough rental properties to go around, leading to increased rents. In other parts of the world, Build-to-Rent (“BTR”) assets are thriving as an investment class.
While it can assist with alleviating the affordable and social housing issue through boosting supply, we’re expecting to see more boutique Build-to-Rent developments designed to capture those life-long renters and advocates of co-living. Getting this off the ground in Australia has required intervention from Government and consideration of tax policy to the sector. A number of the States have now initiated policy specific to BTR developments and it’s only a matter of time when affordability will force the others to follow.
Innovation can help transform the sector
There is huge opportunity for the sector to embrace technology, automation and innovation to work smarter, not harder. We’ve seen 3D printing, collaborative software and automation in parts of the market, but it’s time to ramp up innovation to not only combat the resourcing and quality challenges faced by the sector now, but to also transform the sector for the future. There are new grants and incentives being released to support research & development, collaboration and innovation – are you eligible for support?
Not quite the death of the CBD
We know our CBD's have seen dramatic changes, but they are still important hubs for business and idea collaboration and their activity strengthens the local economy. This alone should mean commercial tenancies remain strong, but the utilisation of office buildings may need to adapt – balancing social distancing requirements with more innovative collaboration spaces to entice people away from their home offices.
Opportunities outside of the big city centres
City Deals and Region Deals are funding instruments – joint commitments by federal, state and local governments – to develop industries and elevate communities over a ten year period. With a number of Deals already in place, will we see the role of Deals evolve to help refocus regional centres into manufacturing and industrial hubs as part of the broader Modern Manufacturing Initiative (MMI)? For instance, Geelong has a Region Deal and they are currently investigating how the old Ford automotive manufacturing site can be repurposed to support our national focus on food & beverage manufacturing.
We cut through the complexity of compliance
The real estate & construction sector is subject to extensive legislation and regulation at the federal level (including the ATO FIRB and ASIC reporting requirements), along with multiple layers of state and territory legislation and regulation. It’s a push and pull scenario when the states use regulation and tax policy to gain a competitive edge on other jurisdictions. Whether it’s tax, audit or risk, we can cut through the compliance and complexity.
Take the Project Trust Accounts introduced in Queensland in late 2020 as part of the Building Industry Fairness Act (Qld) 2017 which introduced a significant level of additional administration for industry participants.
Sale of Box+Dice
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