Ryan Middlemas

Our CEO Kirsty Chessher-Brown interviewed Ryan Middlemas Managing Director of Carrick Developments on the increased interest in apartments and the effect supply shortages has on construction costs.

Ryan Middlemas – Managing Director, Carrick Developments

2021 hasn’t been the smooth ride we were all hoping for on a COVID front, but the property market has been a shining economic light.  What are you seeing on the ground?  Who’s buying?

I think the market has been extremely strong and I think it’ll maintain that strength for quite some time. We have two different active projects now that have a different target focus but both have had very active inquiry and sales and we’ve seen plenty of downsizers at one of the projects. The other has seen a lot of local owner occupiers and even, unexpectedly, some for offshore buyers, which we haven’t seen for a few years.  The only cohort we haven’t seen that much of is domestic investors, mainly because I suppose they’re preoccupied with what’s happening in Sydney and Melbourne.

We’re seeing strength across the board and I think it’s primarily driven by interest rates, which drives almost all real estate.  Also, Brisbane was moving into a long term apartment undersupply pre-COVID anyway, and then you had at least a year or more of supply disruption as COVID hit, which has translated into the heightened demand and reduced supply we see right now.

While we’re not ‘post-COVID’ quite yet, what long lasting impacts do you think the pandemic will have on the way we deliver spaces, places and homes?

I think a lot of people want to have some kind of profound comment on this but I don’t think COVID will have any particular impact long-term.  When life returns to largely normal, people will return to cities, and people will continue to work in offices, and while the proportion of the people who work from home will be higher than pre-COVID, I think that’s just the acceleration of an ongoing trend. In the short term obviously people are working from home but that doesn’t really affect new construction to a great extent because it’s still two years away before any development in the planning stage right now is complete.  I think the idea of having a dedicated study is probably a good one to improve amenity and it’s a natural improvement to apartment living, but I think that is a feature that would add value even without the COVID work-from-home factor. I also don’t buy into the idea that the CBD will die as a result of COVID. I mean if you’re a lawyer with 10 years’ experience then you probably enjoy working at home because you can function quite independently but if you’re just starting your career, you need to be there in the office to learn those skills. You can function as an independent professional working from home, but it is very difficult to learn to be one sitting at home by yourself. And if you want to develop a practice and be promoted you probably need to be out, meeting people. So we function for this one to two year period of disruption, but if you tried to do that for another five years there would be issues across every sector as the pipeline of experienced professionals would be seriously disrupted. So I think probably the way people work will change and we may spend a bit less time in the office overall but I think by and large, in five years time, I think life will be largely as it was pre-COVID.

What is the greatest challenge you are currently facing as a business in getting stock to market in Queensland?

Rising construction costs are our biggest challenge at the moment.  With prices so strong, but pressure on costs, there’s a huge danger that you lock one in without the other.  It’s not really a barrier but we are being particularly careful around pricing of our product, and construction contracts that we commit to.  There are currently capacity constraints among builders, and you actually get to the point where you have to find someone who’s willing to even quote things at the moment. All the processes leading up to that phase of construction are taking a lot longer, including consultants taking longer to complete studies.  But you have to take a little bit of the bad with the good, and while every developer will complain about construction price rises, they aren’t complaining about the value of their end product going up as well.   

For medium density, the pressure point has been steel, and then there’s been a flow on effect that a lot of builders in the single home market can’t get timber, so they’ve moved into steel and driven up the steel price further.  Even a lot of smaller bits and pieces have increased, which all add up including appliances, but I think probably the primary one is steel.

 

Thinking ahead to the next 12 months, what is your prediction on how the property market will perform and are there any potential showstoppers?

The differential between housing and apartments is now the largest it’s been for 15 years and I think you will see a bit of mean reversion, and apartment prices will probably grow more strongly, whereas the house price growth may moderate. In my opinion house prices are driven by land value but apartment prices are really driven by construction costs.  Apartment pricing has to climb to reflect the increase in construction cost, otherwise it won’t be feasible to build anything within a few years.  I think apartment prices will grow more rapidly than housing in the next 12 months in order to close that value differential.

South East Queensland in general is just absurdly affordable. The median house price in Brisbane is lower than the median house price in Hobart at the moment, not that I have anything against Hobart, it’s a very nice place but, but Brisbane is a much larger city with a lot more people and a lot more economic drivers behind it.  I think the rest of Australia is slowly waking up to the incredible value presented by South East Queensland real estate, in conjunction with the employment and lifestyle benefits that come with living in the region.

With a Federal election likely on or before the first half of 2022, what are the critical issues from a property industry perspective that you’d like to see discussed during the campaign?

The government effect on property works in the opposite direction to most people’s focus, so the local council matters much more to me as a developer, then the state government, and the federal government is the least relevant because even though it may not be the case in many other areas of life, in terms of how it affects decisions on the ground in property, the direct impact of the Commonwealth is minimal. The principal council decisions are more important than the federal decisions. But I think the way the federal government affects real estate is through various taxation and other policy settings, and probably indirectly through immigration policy. So personally I don’t think there’ll be any real discussion in the next federal election of issues that directly affect property, particularly with Labor ruling out changes to negative gearing and capital gains tax.

I think the immigration debate might be a topic that will force itself to be a bit more of an issue, because the election will probably be held around the time that borders are reopening. Initially as borders reopen, there’ll be a catch up phase of Australians traveling overseas and, and others returning. But in time, that longer term immigration will come back and I suppose the easy thing is to simply let the settings return to what they were before, unless we see a return to the Big Australia debate we saw a few years ago.   

One particular thing that attracts me to the SEQ market is how much less reliant it is on international migration compared with Sydney and Melbourne. You can see from the ABS statistics that when international migrants come to Australia they largely go to Sydney and Melbourne, and then people who’ve been in Australia for longer, either born here or been here for longer migrate interstate to SEQ, and I think that trend will continue. South East Queensland is the interstate migration capital of Australia. The real driver of all that always has been the affordability that I mentioned before. I think if someone is up to their eyeballs in debt in Sydney and they come to SEQ and realise that, except for a small handful of jobs, that they can largely earn the same income that they would earn in Sydney but the housing is less than half the price – that is a very attractive proposition. That is why we’re seeing strong levels of interstate migration.

The classic view people may have had that it’s older people retiring to the sun but the median age of interstate migrants to SEQ is 31.  It’s young families primarily that’s actually driving the migration which is ideal from the state’s point of view, and I think that will continue.