Victorian Budget signals warning for residential construction industry

Comments from Neil Brennan, Director of Business Advisory at William Buck Chartered Accountants.
The residential construction industry has raised concerns of a declining demand for residential developments, after the state budget infrastructure announcements on Tuesday. 

The Victorian government announced $13.7 billion would be invested in infrastructure to accommodate Victoria’s high growth population and estimated it would support the creation of over 75,000 new jobs.

Neil Brennan the National Leader of the Property and Construction Division at William Buck Chartered Accountants, said with property turnover predicted to decline, the announcement could have ramifications for the residential construction industry.

“While infrastructure is essential, creation of these jobs will require the same skills the construction industry need; putting the supply and demand of skilled workers out of balance and resulting in higher labour costs,” Brennan said.

“With increasing labour costs, lack of land turnover and reduced incentives for investors, there is no doubt residential construction will be under pressure and is the reason the government is expecting a decrease in property tax revenue,” Brennan said.

Brennan said those in the residential property industry would have to start preparing now.

“Profitability is always a key concern for builders and there should be a plan for addressing this now,” Brennan said.

“Residential property owners can start looking at pricing structures to subsidise or avoid future loss,” he said.

Brennan said that embracing new opportunities may also be the way forward.

“A smart move is to look at regional areas and take advantage of government incentives to take the pressure of Melbourne suburbs and support regional growth hubs,” Brennan said.

Brennan said  a strategy for managing declining demand for residential developments should be their priority, to consolidate their current position.

“Identifying what makes you unique, building upon existing relationships and focusing on your niche market will help ensure your experience and expertise is always in demand,” said Brennan.

“It’s clear the government has been focused on slowing residential construction to be able to catch up on the infrastructure demands that an overflowing population creates,” he said.

“So, whilst the balance may not swing in construction’s favour now, we all know that demand will eventually increase again, and it will be those that weather the storm that will grow and prosper,” he said.
ENDS

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