A more positive year ahead in real estate, but not without risk
Deloitte Real Estate Outlook 2018 – Australian Perspective
28 February 2018: The Deloitte Real Estate Outlook 2018, launched today paints a positive picture for the Real Estate and Construction industries in Australia in 2018. But not one without risk.
Although the uncertainty of previous years has not entirely gone, and some markets won’t be as buoyant as they have been, Deloitte Real Estate National Lead Partner Alex Collinson says: “The road ahead looks more certain in aspects. Although it will likely see its fair share of surprises, and will need careful management.
“Clearly, cities today are no longer mere aggregations of buildings and people. As the industry prepares for smart cities and mobility, real estate companies are mobilising to meet these new demanding developments.
“Advancements in mobile computing (5G technology), cognitive, and artificial intelligence, as well as data-gathering tools like sensors, offer both risk and opportunities. They also highlight the gap between changes in technology and current business productivity. And are testing an organisation’s ability to partner, ally, purchase and work with a broad range of skilled manufacturers, technology specialists and distributors.”
The Macro-economic outlook for 2018 says economist Kristian Kolding, Deloitte Access Economics has Australia remaining at the upper end of developed economies for projected growth, supported by population growth and linkages to Asia.
Household debt has escalated with house prices and our household debt to income ratio now the second highest in the world, behind only the Swiss, according to the Real Estate Outlook 2018 – the Australian Perspective.
"The good news though is that global economic growth picked up during 2017, driven greatly by Asian economies. That has translated into much stronger employment growth in Australia, which should also lift demand for capital, and boost the outlook for business investment,” Kolding said.
The current residential property upswing has seen strong price inflation, up around 47% across capital cities since December 2012 (around the beginning of the current upswing nationally). Chart 3 shows that price growth has been uneven across the states, pulled along by the Sydney and Melbourne markets.
The Outlook also considers the impact of the Royal Commission into banking, which may raise the effective cost of borrowing, as banks are likely to respond by continuing to limit lending to risky initiatives, including some property development and foreign borrowers.
Collinson said: “Choices as always will need to be made, and this year more than ever those choices revolve around business models. The right selection will be driven by both niche and structural opportunities, as well as the macroeconomics and markets."
“There is no question that real estate and construction companies must become more agile, innovative, and collaborative to continue to stay ahead in positive financial impact. This means reimagining talent and culture, as everything about our workforces continues to shift – their needs, ages, gender, and cultural norms. How we do business and job satisfaction, all need to be redefined.”
This year’s Deloitte Real Estate Outlook looks at the issues and challenges of the emerging ‘no collar’ workforce. What it means to current structures and productivity.
Collinson concluded: “Although some in the industry are embracing change, we believe the choice is clear, and our research indicates, businesses need to keep pace with the changes in the environment around us or slowly become irrelevant.”
- Macroeconomic backdrop - Australia has chalked up its 26th consecutive year of economic growth, and the clouds around Australia’s economy are clearing – for now.
- Investment trends - It is important to make the distinction between ‘build to rent’ and ‘affordable housing’.
- A-REITs – Reflection on value - The market's perception of the cost of risk has lowered.
- Development in Western Sydney - The question to ask, is not: ‘Why are you in Western Sydney?’ but, ‘How can you afford not to be?’
- Why should companies focus on real estate fintech start-ups?
- Cyber in real estate - Malicious controls of systems e.g. building management can lead to theft of data and also physical harm and safety.
- Embrace robotics and cognitive automation – Being slow to adopt technology has meant many operational inefficiencies in the industry today.
- Digital finance: the new superhero - Smart, integrated planning platforms are all about ‘time to value’, ‘rate of change’ and ‘agility’ in a tight market.
- Reimagine talent and culture - Only 10% of the global REC sector agree they have sufficient talent today to support their digital business strategy.
- Scenario – what if? - What would a real estate investment trust look like if China stumbled?
The Australian synopsis of the 2018 Real Estate Trends can be found here.