Steering a steady ship
A record delegation headed to Darwin last week for a shot of inspiration and the inside story on the industry’s outlook. So, what keeps Australia’s property leaders up at night?
The men and women leading Australia’s largest property companies sleep well, it seems.
Despite some challenges ahead – from political uncertainty to a potential credit crunch -the stellar line up of speakers was upbeat about the industry’s fundamentals.
The end of two cycles – cap-rate compression and credit – had been a “long time coming”, argued Susan Lloyd-Hurwitz, the Property Council’s national president, CEO and managing director of Mirvac.
We are heading towards the “end of the cap rate compression cycle and income is going to be much more important, but the solid foundations of income are all in place,” she said.
Stockland’s managing director Mark Steinert was waiting to see “how hard and how long” the credit crunch would be, and how the Royal Commission would affect credit availability.
Investors were finding it harder to raise capital “and that’s obviously translating in the housing sector to variable degrees,” Steinert said. It was also having a “ripple effect” on consumer confidence. But Steinert thought any slowdown would be “moderate in nature”, pointing to steady interest rates and low levels of unemployment.
Anastasia Clarke, The GPT Group’s chief financial officer said the combination of tightening credit and potential changes of government could be “very destabilising” – particularly if a new federal government changed capital gains tax benefits or eliminated negative gearing.
Adrian Pozzo, Cbus Property’s chief executive officer, was also worried about confidence, which he said translated into “a headache” for the property industry.
Grant Kelley, Vicinity Centres’ CEO and managing director agreed that negative gearing and immigration were market influencers. But he said the big issue that kept him awake at night was infrastructure.
“I think it’s really hard to get around Australian cities these days,” he said, adding he was surprised how difficult this had becomeafter many years living overseas. The “trick” for government was to address the current “disconnect” and “synchronise the federal policy of immigration with the state policy around infrastructure”.
Clarke was looking to government to accelerate infrastructure investment and referred to the earlier keynote presentation from the Hon Sir John Key, who had said “Australia should absolutely be pro-migration”. To “win the argument about migration, you’ve got to be able to deliver the infrastructure and the property people need,” Key said.
“Uncertainty of big investment decisions will absolutely halt because of not knowing whether the infrastructure will go ahead or not,” Clarke added.
Earlier in the day, Key had enthralled the audience with his leadership insights gained after eight years in the top job across the pond. Key applauded Australia’s “28 years of uninterrupted growth – the longest growth spurt of any developed economy in the world”.
“But that growth has masked more and more bureaucracy and regulation,” Key said.
Our challenge in Australia is to “strip away that bureaucracy to make planning quicker and more affordable”.
Pozzo agreed with Key, lamenting the planning process in Australia’s capital cities. “When you’re paying a lot of money for land, you can’t have a two- or three-year gap in between processes,” Pozzo said. This was undoubtedly influencing housing affordability.
A lack of certainty – around planning and politics – were at the forefront of the industry leaders’ minds. And with federal and two state elections looming, conditions were not “ideal”, the panel agreed. Is there anything businesses can do to plan for uncertainty?
“Just make sure your business is as resilient as possible,” Lloyd-Hurwitz advised, so that it can withstand shocks, “whether it’s a credit crunch or unemployment starts to riseor it’s elections cycles”.
The industry’s leaders agreed that the banking Royal Commission had lessons for the property industry. Lloyd Hurwitz said Mirvac had “lined ourselves up against every single recommendation” made in relation to the Commonwealth Bank “to ask ourselves the question: are we doing anything, inadvertently perhaps, with no ill intent?”. She said the process had helped improve customer service.
Steinert said he also looked at all negative customer feedback and was fostering a culture where “customer complaints as an opportunity to create a better customer service”.
A shift was underway in the relationship between developers and the community, and in how we manage the growth our cities, the panel agreed. Lloyd-Hurwitz pointed to the “enormous amount of protest” against Mirvac’s Harold Park development in Sydney. “The head of the protest group now lives at Harold Park.” The negative community sentiment was based on fear, she added.
How do you overcome that fear?
Do things well, the panel agreed. And demonstrate that our industry doesn’t take away space – we create space.