Grant Dennis on the surprising positives to come out of the last 18 months
Our CEO Kirsty Chessher-Brown interviewed Grant Dennis of the Dennis Family Corporation on the surprising positives in the development and building industry during the difficult times of the pandemic.
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?
First of all, consistent with the balance of the housing industry, Dennis Family Corporation has obviously experienced a significant positive impact as a consequence of the HomeBuilder stimulus on sales levels across both our residential development and home building businesses. Surprisingly that strong demand has continued post-stimulus.
So just to give you an idea of the impact that HomeBuilder has had, in the June 2020 quarter, across our nine estates in Melbourne and South East Queensland, we had a combined total of 71 sales. Across the same quarter in 2021, we had combined total of 453 sales. On a full year basis for FY21 we did over 1,200 contracts about twice what we thought when we pondered the year ahead in April 2020. We had initially thought that the market trend would mirror that of the introduction to the GST, where people panicked and wanted to save 10% on GST, which resulted in the market initially skyrocketing and then dropping back to below the long-term average. However, post-HomeBuilder in May 2021, we made 131 sales and in June we had our best ever month with 200 sales, so the level of activity out there remains surprisingly strong.
Overall, of the sales we’re making, about 47% are first time buyers. But you’ve got to be a bit careful with that definition of a first time buyer because it may not necessarily be their first time buying a house if they are an overseas migrant buying and settling in Australia.
In terms of the sustainability of the level of demand post-stimulus, we are aware there has been a significant ‘pull-forward’ of demand. We’ve got empirical evidence from talking to customers that suggests their intention to buy was in two to three years’ time, but they have fast tracked their decision to buy. Another significant contributor to the current levels of demand is the very low interest rate environment. The rates are just so low that it reminds me of the conditions that existed in the 1980s when I first joined the business. At that time, it was actually cheaper to buy and pay a mortgage than what it was to pay rent. The other driver is obviously COVID, which has changed a lot of people’s financial priorities. Money people set aside for a potential overseas trip is now finding its way into the housing industry.
The effect of the HomeBuilder stimulus on our Developments business that I have outlined above has also been mirrored in our Housing business Dennis Family Homes, which has experienced the same sort of positive trends and a significant uplift in sales across its home building operation throughout Victoria and southern New South Wales.
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?
We’ve just conducted some fairly extensive market research and the message that’s coming through is that not much has changed in terms of built-form priorities. People are conscious of having a spare bedroom as an office, driven by the widespread shift to working from home that has accompanied COVID. But in terms of the actual physical land development and the design of estates, people are more conscious and more aware of the importance of the estate amenity than before, but there doesn’t appear to be any significant shift in requirements regarding estate development.
Regarding the impact HomeBuilder has had on regional markets, we do not have any exposure to Queensland regional centres, however, one impact we’ve seen from our Victorian home-building business operations is that the regional markets have seen a significant uplift in terms of demand. For example, in the town of Warrnambool, we would usually sell 15 houses into that market a year from a longstanding relationship with a local agent Due to HomeBuilder we sold 70 houses in four months. The only thing we can put that down to is people wanting a holiday home somewhere, and given flexible working arrangements, somewhere they can also work from remotely. Ballarat is another example where it used to be about $100,000 cheaper for a block of land than metro Melbourne. There’s now a shortage of land in Ballarat and, as a result, prices for land have gone up by $80 – 100,000 and now almost matches metropolitan pricing. Bendigo is another major Victoria regional centre where the market is also strong, but interestingly, demand in the regions doesn’t appear to be impacting sales in metropolitan Melbourne.
What is the greatest challenge you are currently facing as a business in getting stock to market in Queensland?
It’s the same old culprits of the planning and approvals process that continue to be a challenge and will remain an ongoing issue. It seems Queensland, including the South East Queensland region where our business in this state is focused, is seeing a noticeable up-tick in interstate migration which will only put more pressure on supply. I think one of the biggest challenges is the methodology many Local Government Areas have adopted regarding the Regional Plan and their future supply assumptions. LGAs have assumed a significant amount of supply will come from consolidation and re-subdivision of previously subdivided areas into rural residential. The reality is that as low as 5% of rural residential might be consolidated and re-subdivided, and the time taken to do so is quite often economically unviable. I know the State Government is doing a lot of work in this area, but consolidation and re-subdivision can’t be relied upon as a significant source of new supply. As a result, there is going to be real pressure on supply going forward across the South East corner.
Thinking ahead to the next 12 months, what is your prediction on how the property market will perform and are there any potential showstoppers?
I mentioned the impact of the distortion in the market when the GST was announced and I think the same dynamic has to apply taking into account COVID, the stimulus, and the closing of the international border. I think the next 12 months is going to be very solid in terms of activity on the ground as the impact of the stimulus works through the system. Historically, about 50% of housing demand nationally comes from natural population increase, and the other 50% comes from net overseas migration (NOM). Overseas migrants who arrive don’t necessarily purchase on day one, however they do purchase one, two, or three years later. So, 50% of traditional demand for housing has been reduced to zero. This has to result in a lack of underlying demand into the future. The other issue the industry faces is that the stimulus has brought forward what would otherwise be ‘normal demand’, consistent with the impact the introduction of the GST had on the market. So sometime in the future, and we’re thinking somewhere between 9 to 12 months’ time, there’s going to be a significant hole in the market due to the impact of the stimulus.
At the moment the industry is satisfying the stimulus demand, but like a well that has a known water supply limit you can only go to the well so many times before it runs dry. And what is interesting is that other industries are experiencing the same market distortions, such as caravan and campervan sales for example.
Do you think there is a chance that the typical immigration pattern of entering Australia via Sydney or Melbourne may change, with swing in preference to South East Queensland?
I don’t think historical migration into Queensland and South East Queensland will change much at all. Many overseas migrants arriving in Australia have very strong family and community ties. Queensland and SEQ just don’t have the same ethnic diversity that Sydney and Melbourne do. So if you’re a family member coming from South East Asia you are most likely to go to the city where you’ve got family and friends, rather than considering a fresh start in Queensland. So I think the historical composition of our overseas migration will remain relatively the same.
I do see potentially a sustained increase in migration into Queensland and South East Queensland. However, as a valuer once said to me ‘sunshine doesn’t pay the bills’ so maintaining strong interstate migration will be very employment opportunities dependent. If you reflect back on the last 10 years, the market in South East Queensland has largely gone sideways but has the potential to experience higher levels of sustained demand providing higher levels of supply and employment opportunities are maintained.
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?
I think one thing that really matters is the future status of the international border. Australia as a relatively young country, is by necessity a net importer of capital, both financial and human. Our economy is very dependent on maintaining relatively high levels of NOM.
So, clarity around the national border would therefore be very welcome.
I am pleased to see the debate around negative gearing has been put to bed. The reality is negative gearing exists for a reason and is part of the larger debate on all forms of taxation. it would also be good if the development industry was not used as a political football by all levels of Government, we provide one of the necessities of life – the need for shelter.