Construction costs outrank planning as top challenge for developers

Construction costs have emerged as the primary concern for Australian property developers, surpassing planning restrictions and high interest rates, according to a new industry survey.

The inaugural Centuria Bass 2024 Australian Property Development and Finance Index found 47 per cent of developers cited construction costs as their biggest challenge.

Despite this obstacle, 70 per cent of the 67 developers, investors, fund managers and brokers surveyed expect their project volumes to increase over the next two years.

“Within the residential sector, in particular, there has been considerable debate at the Federal and State parliamentary levels about reducing planning red tape to address the housing crisis,” Centuria Bass Joint CEO Nick Goh said.

Transport-oriented developments present the strongest residential opportunity according to 37 per cent of respondents, followed by subdivisions at 28 per cent.

The survey revealed mixed views on construction conditions, with 41 per cent expecting improvement while 35 per cent forecast deterioration.

Construction finance dominated lending activity, with 95 per cent of respondents naming it their most common loan type over the past two years.

Most developers are securing funding from multiple sources, with 72 per cent of loans now coming from non-bank lenders – a significant increase over the past five years.

The most frequent loan size ranges between $10.1 million and $20 million, with 69 per cent of projects using multiple funding sources.

Goh said Centuria Bass’s construction finance has primarily focused on land subdivisions and townhouse developments, which have proven more viable due to lower construction costs.