Author: Steven Chandler – Managing Director – LEFTA Corporation Pty Ltd.
With the arrival of foreign investors for development projects it has become increasingly difficult for property developers to obtain the margins they used to. There is so much more competition for development sites than there was before and the foreign investors are willing to undertake projects for smaller and smaller margins that Australian developers are used to.
To make projects more viable it is likely that property developers will look to product innovation to reduce their development costs, particularly in the construction cost arena.
So what does this mean for everyone?
For the property developer it can mean the difference between passing up an opportunity or creating a project. It can also mean no sales if the market does not accept it. It may mean that the project can be completed much faster and give the developer their margins sooner so they can start another project. There is risk and reward for the property developer to consider.
For the builder it can be the difference between winning a project or not AND taking on a potential liability for a potentially unproven product or construction system. Again: risk and reward.
For the innovative product/system supplier it means real projects, real sales and real profits (maybe). In fact it means that they can refine their product and create more effective and efficient products/systems. Their risk is product failure; their reward is success and profitability.
For the end user/investor it can be a time of uncertainty and potentially a long-term liability. Nobody wants to be the “guinea pig” for any new product trial. This can mean the end user does not purchase the product BUT only if they know! And that’s an interesting consideration.
What level of disclosure does the property developer have to a potential purchaser? Is the final certificate upon completion of the project, which states the building has been completed in accordance with the relevant authority requirements and the various codes, adequate?
Interesting isn’t it?
So what’s the answer? Let’s take a look at the fundamentals of property development. Assuming there is demand for a product in the market and a particular traditional form of built form is not feasible, do you walk away? No! You look for a way to satisfy the demand in a viable manner. Innovative products can be the answer.
Managing the risk that could be generated by using the innovative products is critical from everyone’s perspective.
There’s that word again “RISK”
Assess the risk and make your decision; simple, right?
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