Residential construction sector cautiously optimistic

Fears that Australia’s residential construction sector might be disrupted by the coronavirus pandemic have not been realised, and while the crisis is not yet over, the industry’s outlook is cautiously optimistic.

The Reserve Bank of Australia said in its May meeting minutes that builders’ supply chains and construction sites have continued to operate well despite COVID-19.

Clinton Arentz, Trilogy’s Head of Lending & Property Developments, agrees, saying Trilogy’s portfolio managers, valuers and quantity surveyors have reported few problems to date.

“We’ve looked at that very closely to see if any of our projects might be adversely affected,’’ says Clinton.

“We’ve looked at supply lines and builders and sub-contractors, trades and delivery systems, and so far we’re pleased to report very little effect on the portfolio.

“Many of the projects in our portfolio are smaller projects, infill projects and the like that are less affected. And in particular some of the types of projects we do such as land subdivisions, completed stock and some smaller commercial projects are also well placed to work their way through this period with minimal disruption.’’

The RBA minutes revealed the bank is concerned about the potential impact of the pandemic on values in the office and retail sectors of the property market. But while residential sales volumes have been affected by lockdowns, and house prices have flatlined in recent months, an underlying national shortage of homes is expected to limit longer-term negative impacts on the housing market, according to the Master Builders Association.

“Across our portfolio at this stage we’re pleased to report there’s been minimal impact with respect to valuations at this time,’’ says Clinton.

“That’s partly because of the type of project we’re normally attracted to – smaller, inner-city projects which have good valuation support. It’s early days and the market needs to work its way through this period, but we feel our projects are quite well placed.’’

Trilogy’s funding activities are also well diversified both by sector and geographically.

“We’re spread across the three primary states, Queensland, New South Wales and Victoria,’’ says Clinton.

“And of course our product type is spread between residential apartments and townhouses, land subdivisions as I mentioned earlier, smaller construction projects, commercial and industrial.

Trilogy is also continuing to receive a good flow of quality construction loan applications, Clinton says.

“Existing loans are continuing to progress along, and in addition we expect to maintain and perhaps increase our competitiveness in the marketplace moving forward.

“We’re seeing a flight to quality from borrowers seeking more experienced lender groups such as Trilogy, so we believe there is a very good future ahead for our lending model.’’