Developers are being encouraged to lock in low construction costs before prices rocket, new research predicts.
Research by property and development consultants, Davis Langdon, indicates that while construction costs will remain low into the future, moderate price increases are approaching.
"We expect that over the next three months or so, developers who are looking ahead will be trying to lock in contracts at today's low prices to better place them to be competitive when the economic recovery starts to impact on the high-rise market," said Davis Langdon's national research manager, Rachel Kelloway.
Davis Langdon's tender level index, which measures the movement in construction prices associated with high-rise residential projects, decreased by 2.3 per cent over the past 12 months as competition for projects increased as a result of the economic downturn.
Government incentives, including the National Building Economic Stimulus package, have contributed to Davis Langdon's forecast that tender prices will rise by 2 or 3 per cent in the next year.
"With the government stimulus packages now in full swing and some signs that the worst of the economic woes are over, prices have probably bottomed out and it is likely that construction costs will begin to rise, albeit modestly, over the latter half of the year as contractors seek to raise their profit levels from their current low base," Kelloway said.
Kelloway's research is bolstered by HIA's recent announcement that seasonally adjusted building approvals increased by 7.7 per cent in July with multi-unit approvals sky-rocketing by 28.4 per cent.
"It is very encouraging to see a strong rise in multi-unit approvals for the second consecutive month," said Harley Dale, HIA's chief economist. He concedes, however, that "the multi-unit sector has been very weak for a long time and even with the July result, approvals are 21 per cent down on the same month last year."
David Langdon expects that over the next 12 months, tender prices will increase by 3 per cent in Melbourne and Brisbane and 5-6 per cent in Darwin. Perth, Adelaide, Sydney and Hobart will either remain flat or experience slight increases.
