In a moderating property market, where project feasibilities are under pressure from slowing sales rates, rising construction costs and tougher lending conditions, properly managing your project’s cash flow through the entire life cycle is critical.
As times change, the need to maintain control grows, particularly once construction commences and the invoices start flowing in.
So, what’s actually going on and what can you do?
Over the past few years, Australia’s major capital cities have witnessed an unprecedented construction boom, largely driven by a buoyant residential sector, that has contributed to rising construction costs.
While this historically high level of construction is now starting to moderate, there is another wave of infrastructure activity that will continue to keep prices on the up in Australia’s major cities.
Australia is spending more on infrastructure now than at any time in the past 30 years – almost $100 billion this financial year alone, according to the Reserve Bank of Australia.
It’s very unlikely that anyone in the major markets, particularly Sydney and Melbourne, can expect a reprieve in construction costs in the future.
There is nothing that drives real estate markets more than access to credit.
The lifeblood of the investment and development markets has recently dried up due to regulations imposed on Australian banks by the Australian Prudential Regulation Authority.
Concerned about an overheated property market, the lending watchdog sharply tightened the level of exposure Australian banks have to property.
The result? Less money. More expensive money. And harder-to-get money.
A group of non-bank lenders, private financiers and hedge funds have attempted to step up to the plate, however sourcing credit for real estate is still challenging for even the most well-heeled property operatives.
In times like this, it's critical to manage your project cash flow with complete vigilance.
According to Altus Group, a leading provider of advisory services, software and data solutions to the global real estate industry, here are three tips for balancing risk and return in a challenging environment.
1) Set your project up for success with the best tools
From the outset, select the right software to forecast the financial viability and risk profile of your next project.
By setting a solid foundation for forecasting your project, you’re likely to ensure the real project will be delivered on time and on budget.
2) Avoid blowouts by managing budgeted versus actual costs
Forecasting what costs might be in the future is hard enough. Managing the actual costs when they occur is an even tougher challenge.
Ensuring that you know each project cost as they occur and comparing any variances against actual costs on a month-by-month basis is invaluable.
Taking this "whole life" management approach provides visibility and certainty in tracking a project’s performance.
3) Save time and money by integrating 3rd-party accounting software
Efficient project management is all about time and money.
You can boost project performance by ensuring that your suite of feasibility and estimating tools automatically integrate with your accounting software.
This efficiency avoids double entry, helps manage revenue trajectory and saves time and money for the project.
With certainty becoming one of the rarest commodities in the current environment, there has never been a more important time to give yourself the tools that you need to manage your project risk.
Click here for more information on Altus Group’s development solutions.
The Urban Developer is proud to partner with Altus Group to deliver this article to you. In doing so, we can continue to publish our free daily news, information, insights and opinion to you, our valued readers.
