- Material inflation and tight labor markets suggest construction costs should be rising.
- However, the anecdotal evidence of our borrowers is that construction tenders in the apartment sector are coming in below expectations
- It appears the 70%+ decline in new apartment developments is leading builders and sub-contractors to compress margins to win business.
- This is good news for developers and underpins the significant discount to replacement cost reflected in our loan attachments points (LVRs).
- It does introduce some construction risk as builders have no margin and could face rising material costs during the life of a build contract.
