How should you adjust your sales strategy, in a cooling market?
Yesterday in the AFR it was reported that 11 Sydney and a whopping 46 Melbourne suburbs have lost all their pandemic price gains and more. This comes only weeks after data suggests it is now over 22% more expensive to build a suburban house than it was pre pandemic. This is even worse when looking at apartments which use a lot more steel and concrete; steel alone is up 43.5% according to the AFR.
Over the past few months, I have been helping client’s in both Investorist and my consulting business navigate the sales and marketing component of these complex issues right now. If you are located in one of Australia’s markets that is still performing strongly from a sales perspective, now is the time to plan and get ahead of the curve so please keep reading and don’t think this doesn’t relate to you. Before you know it, it will.
Whilst every project is different there are some consistent themes which I want to share with you that hopefully will help in your business.
1. Prepare for change, bad and good: It is widely accepted that we have at least another 2 interest rate rises ahead of us, property prices and sales volumes have further to fall and we will likely encounter a recession. With what is going on in with economies globally, in particular China and Europe, many are predicting the next 18 months will be very challenging indeed. However, in contrast we have close to record low residential vacancy rates and rising rental prices, October’s "mini" budget is predicted to bring some good news and immigration is rumoured to be increasing, and quickly. What happens next is truly anyone’s guess.
So what does this mean if you have a pre-launch project? I believe you should keep getting it ready for market. At the start of the pandemic we saw panic, and sales went to virtually zero. There was so little activity that prices didn’t fall, there were just no sales. Then the market boomed in an irrationally vigorous manner. This could easily happen again and you should be ready for the start of it if possible. And make sure you design for the market as people’s property preferences have changed.
If you have a project in the market now you need to have a clear and realistic view of the potential upside and downside. Few would have expected an experienced developer like Central Equity to shelve a partially sold Gold Coast project, but that is what they did despite the reputational impact and cost.
2. Price time appropriately: Banks and insurance companies have made a business out of carefully pricing risk and time. However developers can often have an overabundance of optimism, in a rising market a marginal project can be a great project as you raise prices on the way through, time is your friend. In a falling market like today, even a good project can be a loss making venture.
If you have not started sales or construction, pricing and timeframe decisions can be easier to make. However when sales are advanced or you have residual stock developers need to have a very realistic view of the impact of holding inventory vs increasing their cost of sale. Coming off the back of a bull retail market, this can be a difficult pill to swallow, however the consequences of not appropriately pricing time when you have unsold properties can be much greater.
3. Differentiate: With less buyers in the market each project needs to stand out from their competitors, especially if you are in a competitive market. Communicating your unique differentiators can be a real challenge and you may need to relook at your marketing collateral.
If your project is not a standout you may need to look at repositioning your offering and create offers and plans for different buyer types: investors, owner occupiers or international buyers. Working closely with agents to curate these is important. A basic rental guarantee with little rational is probably not going to get you where you need to be.
4. Diversify markets and networks: Now is the time to broaden your horizons. The retail market may have been great for you before but it now is the time to get back into the wholesale channel market. If you already sell through channels now is the time to broaden your network and start new relationships. Investors will be looking for opportunities, and owner occupiers with be nervous and likely looking for someone to help them, like a channel agent or buyers advocate.
The balance of 2022 will continue to be challenging for builders, developers and agents, however a clear strategy, strong sales networks and commercial realism will allow developers to sell down their projects even with significant headwinds.
By Jon Ellis,
Founder & CEO
Investorist