Simon shares the biggest challenges and opportunities faced by Melbourne’s construction industry 

The market is tough but not everything is out of our control – innovative sales strategies, data-driven pricing and advocating for reform can pave the way for future growth. It all starts with a conversation.

In order to understand the challenges faced by the construction industry, we caught up with Simon Mandragona, General Manager of Sales at AHB Group, the second largest builder in Victoria. With 25 years in the property industry, Simon has experienced the highs and lows but he’s never seen a market quite as challenging as the one we’re in at the moment. 

While Simon believes a shift is on the horizon, he says it’s time for the government and lenders to step in and remove the barriers to buying. 

Q: What key changes have you seen in the property development industry over recent years?

A:  There have been a lot of changes in a very short period of time. Pre-Covid it was far easier to enter the property market. Interest rates were at a reasonable level, there were few borrowing restrictions and land was available, although land delays were beginning to creep in due to the sheer volume. When the pandemic hit, it was doom and gloom for a short period before the government stepped in and overstimulated the sector with the Home Builder Grant. No one anticipated the enormity of what would happen in terms of sales volume. Prices dramatically increased, we had supply shortages and land titles blew out.

Then we entered this very different cycle where interest rates started to creep up, there were barriers to entry with finance qualifications and builders had legacy contracts waiting on titles with outdated pricing. With old contracts, builders have to make a commercial decision in terms of whether they go back to the client for more money or go ahead, build and potentially go broke. As we know, a lot of builders did go broke. Now buyers worry that if they pay a deposit now, the builder won’t be around tomorrow.

Q: How has the market affected the types of buyers you’re seeing?

A: The buyers now are either price-driven or at the top of the market. It’s that middle market where a lot of the damage has been done. At the lower end, they want value, discounts and incentives. You either sell value and price or you sell premium. 

If buyers can secure an established house in a greenfield project and move in straight away, they’ll take the safer option. We have an abundance of titled land but cost of living pressures, high interest rates, increased building costs and a lack of buyer urgency mean the market is flat.

We’re also finding that from a rental return, investors are diving heavily into regional because there’s a shortage of housing. The rental returns are high and entry prices on land are nowhere near what they are in metro.

Q: Where do you see the industry heading in the next 12 months?

A: There’s not going to be an interest rate reduction until next year so I don’t see anything shifting until March or April when I think things will slowly start to improve. The banks need to change the way they look at borrowing practices in terms of that qualifying rate.

Something has to happen to stimulate the market. Ideally, multiple interest rate reductions.

Obviously, there are those pending settlements with a settlement risk between 10 per cent and 15 per cent so you’re going to have some product come back on the market because people’s financial circumstances have changed.

Q: How are you managing the flat market at AHB Group?

A: We’re the number two builder in Victoria with multiple brands and we’ve had massive growth over the last two to four years. It’s easy to get accustomed to those large sales volumes and appetite for growth. We expanded quite significantly into Regional Victoria where a lot of other building companies closed their regional branches.

We’ve got a healthy business in terms of what’s in our pipeline but we are always looking at how we can deliver better results. What can we do differently in terms of product offerings, promotions and incentives? There are also more robust conversations to ensure we have the right people in the right roles. We’re analysing everything right now.

Q: What specific changes would you like to see when it comes to government reform?

A: Whenever the government intervene, they rarely get it right because the governing bodies don’t understand our sector enough. More consultation is needed and they need to remove the barriers for investors. People don’t want to invest in Victorian property because they are penalised for having multiple properties.

I think the government needs to look at how they can get investors into the Victorian property market while also addressing the housing shortages. Why not get investors to enter into a 10-year arrangement whereby they get a tax cut in exchange for offering a reduced rental rate? Then when they sell the property, they don’t get hit with a capital gains tax because they’ve already taken a hit in rental reduction over the first 10 years.

Q: How are you personally feeling about the market?

A: I’ve been in housing and construction for 25 years. I was selling homes when the GST came in and that was an instant spike in prices. I’ve seen all the ups and downs and the cycles are always the same. A lot of people in sales roles or building companies haven’t seen this sort of cycle before. They’ve experienced the good times. I understand it’s just a process we go through and we have to deal with it. 

Thank you to Simon for sharing his knowledge and insights from a building company’s perspective. We’d love you to share your thoughts in the comments. Let’s keep the conversation going so we can navigate the challenges we’re facing and drive the property development industry forward, together.

About Red23

Red23 is a leading sales and marketing partner for new land, townhouse and apartment communities across the eastern seaboard of Australia. We specialise in custom and data-driven strategies that turn prospective buyers into proud owners and help build thriving communities.

Since opening in 2007, we’ve built strong and lasting relationships with Australia’s leading developers and become a natural extension of their teams. While our clients have diverse projects, they all want the same thing - an agency that will pull out all the stops to deliver exceptional results.
 
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