2020 is shaping up to be a record year for custom home builders across Australia despite the COVID-19 pandemic, with some forecasting a five-fold increase in net profit for quarter four.
Analysis of 252 residential building companies by the Association of Professional Builders (APB) has found preliminary sales for quarter three are through the roof, with contract signings at record levels and forecast net profit in quarter four at a ‘never seen before’ level, anticipating an increase of more than 355 per cent compared to the previous three quarters.
Construction Marketing Specialist and APB Co-founder Russ Stephens said most builders were reporting record sales just seven weeks into the quarter.
“Contract signings are at record levels mirroring what is happening earlier in the sales funnel with preliminary agreement sign-ups. This has boosted both revenue and net profit, and in some cases, we are seeing a five-fold increase in net profit being forecast for quarter four,” Mr Stephens said.
“We’ve analysed the data and it comes down to three things; more time, more money and government grants. In the first few weeks of lock down, builders were reporting a significant increase in concept design and preliminary agreement sign-ups. Consumers were making decisions a lot faster, because once those busy households found themselves working from home, they were able to discuss ideas and aspirations that normally take a backseat while life gets in the way,” he added.
“While a number of people have sadly lost their jobs, the vast majority of people remain employed with less options to spend their money now that overseas travel is no longer an option. This additional disposable income is being invested in property rather than being left in the bank where it generates next to no interest,” he continued.
Mr Stephens said government grants such as the HomeBuilder stimulus scheme was the third factor that is ‘literally pouring fuel onto the fire’.
“Coupled with having more time and more money, the temptation to get started with a new build or a large-scale renovation is just too big for most consumers. A lot of building companies are now more concerned with securing enough subcontractors to deliver their projects rather than trying to secure more work,” Mr Stephens said.
Mr Stephens predicted the current high market demand would begin to cool at some point during 2021.
“When ‘mortgage holidays’ end in September 2020 some people will start defaulting on their loans which will put a downward pressure on house prices and we expect prices will fall by 10 per cent in the first half of 2021 which will put pressure on valuations and hamper some people’s ability to borrow what they need in order to build,” he said.
“Loans to investors are also down so that could be an ominous sign for 2021. Government support finishes at end of 2020 so at the moment there is a rush to start construction, but by mid-2021 all those projects will be finished. So unless there is more support on the way the residential construction industry is facing a tough second half in 2021,” Mr Stephens said.
He advised builders to closely monitor the dollar figure of their workflows as that will act as an early warning system for when things start to cool down.
“We are advising our members to use their APB Pricing 4 Profit calculator to check their margins, because once they’ve signed contracts and filled construction slots for the next 12 months, it’s too late. It’s about achieving industry standard pricing benchmarks so that building companies are on solid ground for when the lean times come around again,” he concluded.