Market Update
The development industry is a mixed bag as of April 2024.
On the ground we're experiencing continuing examples of contractors and sub-contractors becoming increasingly in need of work and offering very competitive rates. This is assisting with project viability and giving developers more confidence to push into new projects.
On the flip side, persistently high interest rates, poor economic conditions, and significant stock levels are keeping house prices and sales velocities suppressed. Off-the-Plan sales are not occurring for projects that aren't underway. Demand from purchasers is there, but often their ability to finance the purchase is not. We are seeing a higher level of demand off-plan from Investor-buyers, and completed homes. Many developers and funders have adopted a strategy of spec-building and selling on completion.
However, both we and the wider development market have a strong optimism about the future. One strong signal we're observing is sharply declining CPI rates, which are falling somewhat consistently at 0.7% per quarter. We expect this trend to continue which would bring us into the 2-3% inflation band in the next two quarters which would suggest the Reserve Bank may bring down the OCR in later this year. This would unlock the current demand for housing and increase prices and sales velocity.
Reserve Bank of New Zealand Inflation Data as of April 17th 2024.
Overall, its a tight market for new development and its worthwhile being very selective about the deals you are looking at. That being said, this market offers a good opportunity to lock in low delivery costs and target higher exit values on project completion.
Bailey Investments Update
We're currently at the tail end of our due diligence on a de-risked 7 house development in East Auckland.
The project is a fully consented development with RC, BC, & EPA in place for a development suited to first home buyers. We've used our Due Diligence to obtain a fixed price from Utility Providers and a Main Contract to deliver the project.
We've secured commitments from a Debt Provider and Equity Partner and are now working through a final deal re-structuring with the Vendor before pushing forward.
If you're interesting in finding out more about the project or interested in investing in development, get in touch.
Client Project Updates
Potential Client Acquisition
We're assisting a client with undertaking due diligence on an acquisition of two properties in Central Auckland to construct 14 terraced houses. We're working through our typical due diligence checklist.
We're connecting the client with a community housing provider who may provide the exit for the entire project, as well as dealing with some key challenges including poor ground conditions and a difficult stormwater connection.
Fairdale Terraces
Our Building Consent is issued and our Main Contractor is well underway with earthworks and retaining. We've been dealing with some challenges in the month including obtaining fencing approvals, neighbour complaints, utilities coordination, and unforeseen ground conditions. Moving forward we are finalising retaining and getting into the foundations before starting the public drainage works.
On this project our responsibility has been obtaining the final consents, liaising with utility providers, assisting with funding, managing the programme, tendering the construction and demolition, and administering the construction contracts.
Sea Vista Terraces
We have been working through compliance requirements with Fire and Emergency NZ (FENZ) which are now resolved, as well as coordinating with Omexom and Neighbours for Vector works. We are now pushing forward with obtaining Building Consent and engaging Contractors in pricing the works.
Shelly Beach
We've successfully completed the removal of the Limited as to Parcels status on the Title, are progressing well through Resource Consent and s92's, and are underway with developed design prior to taking the project to market in the coming months. The project has been utilising an Early Contractor Engagement model to de-risk the design process and give the Client certainty around delivery cost from the onset.
Other Projects
We have two West-Auckland projects where we have advised our Client to put the consenting works on hold as the projects achieve the required market feedback, as product-market fit represents the biggest risk to these projects.
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