Rising building costs means brokers must adapt

Building costs are rising and one mortgage broker says this will slow down the property market.

Kevin Wheatley (pictured above), managing director of Sydney’s Bayside Residential and Commercial Mortgages, said the higher cost of building materials would create a major shortage of properties hitting the market.

“Mortgage brokers may feel the impact due to declining demand from new clients,” Wheatley said. “However, I do believe that a demand for refinancing because of rate rises should maintain a balance in the broker channel which should minimise the impact.”

Wheatley said the broker channel had enjoyed the benefit of a buoyant property market over the last two years, which sent property values through the roof.

“I see less people will be buying property because of rising construction costs, so brokers will be impacted due to the predicted slowdown,” he said. “With interest rates on the move, those coming out of fixed rate terms will swing back to variable rates and will bring a flow back to the channel where brokers will be more focused on refinances rather than new business coming in.”

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Wheatley said brokers would need to become creative and new brokers would need to learn how to survive during a tough economic market.

“Clients need a mortgage professional in their corner as they are reliant on their broker finding alternatives to manage interest rate rises,” he said.

Wheatley said rising costs due to building material shortages was driving demand and creating a logistics backlog.

“The [cost] increases are having major impacts on construction companies who have entered into fixed-price contracts and as a result, development companies are hitting a wall,” he said.

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Wheatley said with China currently struggling with rising COVID cases, and the ongoing Ukraine war, the world needed to explore alternative manufacturing companies for supply.

“The knock-on effect will be a 25% increase of costs to build apartments, houses and major delays in the completion of developments,” he said. “This then creates the risk [of] delayed completion and in some cases requiring the developer to apply for sunset clause extensions.”

Wheatley said low interest rates had caused inflated asset prices and above normal consumer spending, driving the inflation rate to 5.1%.

“Going forward, increasing the interest rate will reduce household disposable income, which over time should reduce demand for goods and services which should lead to lower inflation,” he said. “However, the biggest risk to inflation is wages growth, which in turn causes an increase in the cost of goods, again driving inflation. The concern is despite any efforts from the Reserve Bank to curb inflation, there is a level of inflation that is outside Australia’s control due to global demand and supply chain issues.”