Latest / The Follio Property Podcast / Can You Trust the Building Industry in 2025? What investors need to know? | Ep 28 ft. Alastair Harris

Transcript

Can You Trust the Building Industry in 2025? What investors need to know? | Ep 28 ft. Alastair Harris · The Follio Property Podcast

• 0:00
  Can you trust the building industry in 2025? So I can just imagine this wave of activities about to hit the shores of not just Western Australia, but across the country. And these are stages that will not be titled for another five or six months. It actually becomes more problematic during the boom time, right? There are pockets in Perth where it will actually be cheaper to buy. Where's the best opportunities in a new build space?
• 0:21
  Perth just keeps sprawls and sprawls and sprawls. You can go to Byford, Wellard. All of our work in Perth, which is the double brick. Double brick? It's horrific. Sometimes some clients can be pretty tricky. I'm sure you'd be tricky, Rhys. He wouldn't be a terrible client.
• 0:37
  You're listening to the Folio Property Podcast. I'm Rhys Bettle and I'm here each week with my co-host, Lachlan De La Hunty. If you're enjoying the podcast, do us a favor, hit like, hit subscribe, leave some comments so we can continue to grow this channel and bring in more amazing guests like the man we have in front of us today, Mr. Al Harris, 25 years in the building industry. Thanks for coming, Mal. It's great to be here. Yeah, I've enjoyed your pod.
• 1:03
  It's good to have you in the building. We've spent a long time coming. So, Al, I thought we'd kick it off. Can you trust the building industry in 2025? Yeah, great question. I really believe you can, Rhys. You know, I think this is one of the times in life where, you know, a couple of bad news stories, let's be honest, through COVID, it was a lot more than a couple, but some bad eggs have spoiled it for a lot of builders who do a fantastic job. And, you know, you mentioned I've been in the building industry a while. I've been fortunate enough to do my own builds for
• 1:31
  You know, a good 20, 25 years, I've had fantastic experiences every time. So there's a lot of good builders in Perth. It's just about understanding how to pick the right one. Off air, you said, you know, people think, you know, when there's a building boom on, that's when builders are making the most amount of money and it's raining for them. Off air, you're saying it doesn't work like that because you've been through the peaks, you've been through the troughs. It actually becomes more problematic during the boom time, right? Yeah.
• 1:55
  Yeah, that's spot on. I know it's counterintuitive. You'd think, geez, when it's all going well, surely that's when you can deliver a great outcome. But it's obvious that when you've got clients lining up, wanting to jump in, you're taking on business. For all those companies that take on too much business, they can have committed to clients, they've got their contracts underway. All of a sudden, they can't get the trades who are going to do the work or the trades are charging higher.
• 2:17
  And that's where you start hearing these bad examples of clients having either price increases or they're getting longer construction timeframes than what they thought. So, you know, that was the examples through COVID and that. And that was the extreme example, right? That was the extreme. That's where people need to be cautious. So, sorry, we're just raining on the building industry. Is it fair to say that the wash post-COVID has meant a lot of the, you know, C-grade, D-grade operators, as you call them, have been sort of found out and therefore what's left is a little bit of stealth in the industry? Yeah.
• 2:46
  From my perspective looking at it, I think the bad news stories you hear are much fewer and further between. It's not that you don't hear them, but the companies that have come through and come through strong, they've shown the right foresight and planning to take on the right volume of builds at the right price. So if anything, they've come out a lot stronger at the end of this.
• 3:07
  You only have to jump onto any of the good builders' product reviews and things at the moment. You'll see there's hundreds of clients having a great experience. All those clients are a bit more fortunate. They're timed in a real upswimming in the market, so they're getting their build times down. They're completing on time, and they're also ending in a really good equity position at the end of it. So there's some good news stories out there. It's just we tend to hear more of the hard ones, understandably. Because there is a few examples of that in terms of that equity play. Because you're looking at often a 9- to 12-month construction period
• 3:37
  Often a lot of these people who have purchased blocks 12, 18 months ago and gone through that construction cycle now have significant more equity, right? Because they've seen the price run and, you know, you're paying for your land. Obviously, you're not, you can't generate a return on your investment while it's building, but you certainly don't pay the full front of that mortgage until it's finished.
• 3:56
  So you've seen examples of that where people left in a very strong equity business. We do. When you go back a little while, we were seeing a lot of the people building in Perth were from the eastern states, and there still are a lot, but there's also a lot of mum and dad investors now who might have built that first one, had good success on it, and now looking to become, I suppose, developers in a way and are having that success. So those are the sorts of ones. They're not going to be doing 10 or 15 homes, but they'll build up slowly, one, two, three, and they'll have a little portfolio there. So you see a lot of success stories like that.
• 4:24
  What about stock levels? I mean, the constant thing we deal from a day to day. In an established place, stock is low. Is it the same in a land game? Yeah, it really is. Maybe to highlight how hard it can be in some areas, particularly if you're trying to get into your own home and it's your first build.
• 4:40
  we will organise our clients as best we can, as in getting all their finance ready, getting them in touch with the developers, having them basically waiting in queue. But we can quite often in certain areas be the third or fourth hold as soon as that block's released. So the whole stages will go out. And these are stages that will not be titled for another five or six months. So you're almost putting a block on lay-by, right? And say, yep, I'm queued up, stamp the ticket. And they sell, I think I'll fear you saying there was an estate recently in the last few weeks that sold in 24 hours. Yeah.
• 5:08
  Absolutely, and we're seeing that consistently. It's not just one pocket of Perth, it's right around. So there is a land shortage and people do, you're right. It's almost like a land bank when you're not paying, provided you can hold on to it and you don't need a place to live immediately. And with that scenario, so when you put a block on hold,
• 5:26
  Is it a deposit down? Is there upfront commitment in terms of what's required? Because that's interesting. If you don't have to pay for the block for six months, and we're forecasting a bit of a run on prices, there's an argument that suggests that you could be well in front in six months' time.
• 5:40
  Yeah, you could, and many people are. You can't guarantee it, but many people at the moment are. But it's not as flippant as just whacking down a deposit. You've obviously got to be finance approved. A lot of times people are actually putting down cash offers just to make sure that they can get the block. So you are really committed. It's not just... Very similar to the established market, right? The terms are everything and making your terms more attractive. You can see with the first-time buyer's grant that you can get and now the first-time buyer's scheme, for a $750,000 package...
• 6:08
  Buyers only need as little as $35,000 up front, which will be obviously stamp duty waived. First home owner grant of $10,000 plus your 95% first home buyer scheme. $35,000 is going to be very accessible for a lot of people out there. So I can just imagine this wave of activities about to hit the shores of not just Western Australia, but across the country.
• 6:31
  Absolutely. And Lockie, you'd know this better than me, but there are pockets in Perth where it will actually be cheaper to buy and build than it is the established market. So with all those extra bonuses, it becomes really compelling. So we think it's going to be busy again. Well, there's examples there where, you know, you're looking at the replacement costs up front, you're already up 50, 60K equity. Plus you've got the stamp duty reduction. And then like we were saying, with the growth we're expected to have, if you pick the right pocket,
• 6:58
  It could be up $150,000, $200,000 by the time the house is actually built. So from an investor standpoint, although you're saying predominantly it is- Depreciation for the investors, yeah. Yeah. And talk us through what that is because I don't, you know, broadly speaking, we don't talk about it much on the show because buying established properties doesn't come with a lot of depreciation benefits. What would you typically see on a new built dwelling? In relation to depreciation? Yeah, correct.
• 7:21
  Yeah, so I guess to give you an example on that, one we just recently purchased for a customer, that's mid sevens as far as purchase price total, house and land, but they were claiming 14,000 back in depreciation first year. Yeah. So it all adds up. Yeah, it does. That's big because I suppose when you look at, and typically new built properties rent, the yields are higher. You throw an extra 13 or $14,000 of income, yes, that's back off the tax, but that becomes pretty compelling from a cash flow point of view.
• 7:49
  Okay, what I want to really break down is actually into your role as well. So we've talked on the building industry, but you are a builder broker. Talk to us about that. I still don't fully understand what a builder broker does. Yeah, so look, really the easiest I can explain the service that we provide is just it is a daunting process. It's an exciting process, but it's a daunting process for people finding the right builder and the right package for them. So we're just an experienced set of eyes that can help tailor
• 8:17
  the right builder to the right client in the right area. But a much simpler way for everybody to understand it. How do you get your finance? Mortgage broker. And why do you do that? Because they get you better rate. There you go. That's a sales segment. So that's, and we use that as an easy example, but that's it in its simplest form. Rather than you, and let's be honest, most people these days have got really busy day jobs, families, all of that.
• 8:42
  So if they can come to us and rather than have to go to a display home, pick apart 20 different builders, learn how to understand specification sheets, construction. We've done all that. We've done it for a long time. And it's very interesting when you get to know clients, get to know what they're after. We might have a big panel of builders. But by the time you've had the first half an hour, 45 conversation, you're already narrowing it down by area and inclusion and what their end goals are.
• 9:06
  By the time you finish the chat, you're really down to two or three builders that you think would be a great fit. But then by us being able to help them with their design, sometimes providing the design service, they're really in control of that process. So they've got the plan, they know what they want to get, they know where they want to be. And we can go to those two or three great solutions for them and find the one that's going to be the best fit. So essentially, Builders Choice is a mortgage broker for the building industry. Yeah, it's the easiest way to understand it.
• 9:31
  But I suppose what Reece's point, it's like what do you use a mortgage broker for? It's to get the best rate. But it's also to understand that, you know, what bank has probably got a preference towards your situation in terms of what LVR they'll give you because you're a pay YG or you're a business owner. So another bank's going to be more forthcoming. I guess in the building industry,
• 9:49
  What's probably as if not more important than price in my eyes is getting confidence that they're going to finish the product in the timeframe that they're allowed. How do you give certainty or how do you advise any listeners that may go out and build? What should you be looking for to make sure – because there's nowhere really defined and I suppose that's what Builders' Choice does, right? But what are you looking for?
• 10:10
  Yeah, well, probably to cover off the first bit you said, I want to be really clear. We're not really aiming to get people necessarily the cheapest build or big discounts or anything. It's not really what we do. We're just trying to match the right builder to that client. And that's off things that we've always discussed. I don't have the cheapest rate, that's for sure. Let's remember the cheapest rate isn't necessarily the cheapest outcome for the client by the end of it. It's very easy to see something that's bright and shiny and exciting up front and it might come with a discount or an extra inclusion.
• 10:40
  But if that home ends up, as we spoke about earlier, taking you an extra six months to build, you've lost all that and more. The interest cost and not only the inconvenience and not being able to move in. Understanding all the inclusions in there. But, yeah, I think you were asking me, you know, what to look for. I think we spoke really about builders taking on the right volume of work. So all of our builders, you'll see, have performed really well in busy markets and in low markets and over an extended period of time.
• 11:06
  So not just a flash and band that popped down the last 12 months? Yeah, exactly right. And I got to see that. I was very fortunate working for a company like Celebration Homes, just a brilliant company. You could see how they manage that well. So you look for those traits in other companies. But the other things that we haven't spoken about, I think we live in an age where it's really easy to see the sort of emphasis that companies put on their customers. So you only have to jump onto product review and things like that to really see how builders are going as a whole.
• 11:34
  And I think that's where you can get some real confidence that there are builders doing a really good job across the board. And there's a lot of builders getting in excess of four up to five on a really complicated process with clients. So for you to score somebody a five out of five, they've got to do pretty good on your own home, don't they?
• 11:50
  So we focus on that. And that's all on the application. I went through Builder's Choice on the website. You compare every builder in Western Australia from a product review and a Google review. Is that the intention, to bring a bit more transparency to the process? Yeah, it is. It's certainly one of our decision sort of metrics that they're looking after their customers. And look, something I said before is it doesn't mean they always get it right.
• 12:15
  But even if you jump on the one-star ones, you can get a lot out of reading the one-star reviews from a builder from how they manage it. And you can see sometimes some clients can be pretty tricky. I'm sure you'd be tricky, Rhys. He wouldn't be a terrible client. But if you can see that the builder has actually fixed the issue in the end and done it to standard and tried their best to sort of appease the situation and move on in a quick way, that gives you a lot of confidence when something's gone wrong.
• 12:40
  I suppose another little point that I find is a real sort of decision maker for us is how happy their staff are. And that might sound like a funny one to you, but over time in the industry, being fortunate enough to meet a lot of people that are at different builders now,
• 12:56
  Now, if we speak to them and they're having an absolute ball, you know, they love being there, you know, their bosses are great, they're the ones who are going to deliver the outcome for the clients. They'll probably go over and beyond, right? Yeah, versus you speak to some and they're great guys, you know, they do a great job, but they're just about to leave, really hate the job. You're like, okay.
• 13:12
  If the site supervisor leaves and they're managing some site supervisors 20, 30 jobs at a time, all of a sudden they're left in the lurch. And even to that point where you say, how can we add value? When you know a lot of the teams around, there might be a situation where there's companies neck and neck and both brilliant companies for the client. But if you know one of the companies that just had an absolute record-breaking month...
• 13:34
  And it's crucial that this client gets to site really quickly before they move on from their job or for finance or whatever. It might be the decision metrics because you know that company that's just sold 100 homes is probably going to have a harder time getting them to site. So it's just a little bit of that internal knowledge of how each company is working and what they're set up for. That really helps.
• 13:52
  What about remuneration? There's a big stigma in the building industry where there's backhand payments and the clients maybe don't get the best outcome. How does a builder broker get remunerated? And have you seen the industry clean up over the years, post some of the feedback that's come out over the years?
• 14:12
  Yeah, so that's an area that I'm not worried about at all for our business because I think the simplest way I'd explain it to clients and I always talk about is whichever company they go to, they are paying for somebody in sales to look after them for the front end until they get into construction and hopefully if they're a good rep the whole way through the process. So all you're really doing is redirecting those same funds to a business and our business is there to make sure that we go to the builder that's right for them. So it makes no difference to us really which builder we choose
• 14:41
  Rather than being forced to say, well, look, I work for this company. You might want a really high-end home. I can only offer something in the middle, but I'm trying to bend that to you. We can really pick the right avenue for each client at no cost to them. So there's no fee for the clients, but 100% it's a business and the builders do pay us to bring them the work. Okay.
• 14:59
  Yeah. Similar to a mortgage broker, right? Exactly. Banks pay the broker. And you're right. If you go to a bank, they've got one product to push very hard, and it's going to be that bank and all the extras, credit cards and everything they can offer. Same thing with the building space, right? They're going to try to get you in and position you saying this is definitely a solution for you, but it probably may not always be the fit.
• 15:17
  I'd like to think we can, now again, we're not there to provide discounts for clients and negotiate. It's not what we do. The builder's prices are the builder's prices. But I've got an experienced small group of people with me who I think can help save the clients money just through things like smart design and smart inclusions and things like that.
• 15:36
  A really good example would be you see some clients' ideas of what they want to build and they might look fantastic on paper, but you look at a lot of in and outs, you know that roof line and construction is going to be very expensive versus just squaring things up a bit and getting the layout right. So design solutions are actually safe. Okay, and you do that up front? Absolutely, yeah. And most of the builders in Perth have really great designs that are standard product. There's no need to reinvent the wheel every time. We're not all architects.
• 16:03
  We touched on it earlier with COVID and, you know, big news, I guess, over here in WA and Perth with the delays and the builders going under. What's been the biggest things that we've changed in the building industry and what's evolved since COVID where processes have changed that you've seen? Obviously, I appreciate you're not a builder, but you're in and amongst it and have relationships with multiple builders in the industry.
• 16:25
  Yeah, I think, just to cover up quickly on the first bit that we started the pod with, I think some of those players that did the wrong thing have learnt their lesson. So, you know, that's out of it. But where we've got to in the market now is a position where the builders are able to guarantee pre-construction timeframes and when they can get started, but also construction timeframes. So that's really the peace of mind we've been looking for for clients and they can have now.
• 16:49
  even if it gets busier over this next bit of time with the government grants. But I think as well what we're seeing a lot, if you're asking about what things are changing, there was a critical sort of point of all of our work in Perth, which is the double brick. And you understand, Rhys, there's only one brickmaker really we've all got access to, so we're all sort of queuing up for that.
• 17:07
  So now that we're becoming more and more open to different ways of building in Perth, that's really going to make a big change to how much we can get through, you know, steel frame, timber frame, all these options that we're now taking up just like the rest of Australia. That's a good point because Perth is, and it's bizarre, I'm from Victoria and everything over there is either brick veneer, timber.
• 17:28
  You never get the double brick home. It's 5% double brick in Vic, isn't it? Yeah, it is. I've, to be honest, never been in a house with double brick in Vic. And I moved to Perth here, what, 13 years ago, and double brick is horrific. I lived in a lot of 1930s, 40s, 50s homes, and they're super hot in the summer, and they're freezing in the winter. I'm sure they don't have insulation, but that's on the list to do.
• 17:53
  But there is this, what is up with the mindset in Perth? It must be double brick. And then talk us through some obvious solutions out there because what I'm reading, what I'm seeing, what I'm hearing is actually, so the thermal aspects and the acoustic aspects are actually better in some of the steel products than they are in the double brick.
• 18:08
  Yeah, they are. So if you're from my vintage, a few grey hairs on, you still walk around tapping the walls. And I say this all the time in display homes. All the dads come through to make sure for the kids the home's all right by tapping and seeing the brick. But I think what we got used to in WA, there were some very good ad campaigns for double brick. And it's fantastic. That's a great marketing tool in the 50s. Well over half our builds that we do would be double brick. So we've got no issue going that way. It's a great result.
• 18:34
  But just getting it out of the critical path in the build means the builds can be a lot quicker because with steel frame, they go straight up roof on top. And then even if you have a bricklayer on the outside, it can be done after. So you get a lot of time savings. But your question was about, you know, the properties of the home.
• 18:49
  It used to be that there was a plasterboard, thin air and another piece of plasterboard. And that's why we thought in WA that they weren't really good homes. Completely different these days. You know, the systems they use, if you want to understand it very quickly, you know, on the outside line there'll be a Hebel or a brick product. Inside that you've got full waterproofing. You'll have a steel or timber, so the cross beams and the structural beams. And that's all filled with insulation.
• 19:13
  Really, when you look at that package as a product now, as we know, it's just as good and performs just as well. So it's really a right product for the right client. Talking about speed there, trades, you know, there's a, I'm doing some renovations myself and struggling to get access to trades or finding multiple overquoting. You need a builder broker.
• 19:32
  I need a builder bro. We're not in Renault. I reckon that would be hard. But trades, you know, there's a, you know, it's screaming out for more trades here at the moment. How is that affecting the build process in Perth now? And has it improved? Obviously it's improved since COVID. We've seen the building turnarounds increase. But, you know, just looking at maybe the last six or 12 months, are you seeing an increase in trades across Perth at the moment?
• 19:55
  Yeah, so I think I'd circle back to the same comment as the one that seems to be the pressure for the building supervisors and I suppose the business leaders really is the bricklayers and not just the bricklayers but that supply chain. But when you look at the other things, a lot of the bigger builders, I don't need to get into names on this, but you'll see you only have to drive through the new estates to see there's some big brand names now that are doing steel and timber.
• 20:20
  So I'm kind of quite hopeful that that will take a lot of pressure off that and then we won't be hearing about those sort of delays. But if we've done our job right for the clients and have the right guarantees in place with the right builder, we should be covered anyway. So there's going to be pressure. There's all those extra sales coming for all the reasons you've already said. So there's going to be pressure, but I believe that the industry will handle it a lot better this time around. And I do believe with these extra sort of uptake and other methodologies of building...
• 20:49
  It's just much easier when you've got three ways of doing things instead of one to deliver on it. I know we're sure on time, but one thing in our space in the established world, when we're buying properties, our due diligence program on how we assess properties, and it rules out 70%, 80% of things that we inspect we can't proceed with on purchasing because it fails due diligence. Things like social housing, adjoining uses, flight paths, moisture, et cetera. What due diligence do you take, and I'm sure you do as a building broker,
• 21:19
  or buying blocks of land and placing builds for particular homebuyers, what due diligence items do you look for? Yeah, so I could talk you off on this one, but I think it starts right away with the land. So, you know, it's very easy to get caught up in the rush and just grab the first block of land you can, and that's understandable at the moment.
• 21:39
  But if we've set them up correctly and we've chosen the right block for their purchase, it's going to have the right solar orientation. There's not going to be any truncations that really affect how the house is positioned. And it's going to be an easy block to build on. So, you know, by choosing the right piece of land, we're again assuring the clients that they'll get a good outcome. But also there won't be sort of hidden costs that they didn't know about because you have siteworks blowouts or different things. So things you haven't allowed for. Yeah, things we haven't allowed for.
• 22:06
  I thought let's just wrap it up from an investment side. So Lachlan, you know, you feel free to chime in as well from an investor standpoint. We've spoken about in Perth at the moment, there's opportunity there with the replacement costs and especially with the growth that's expected over the build time in the next sort of 12 months. From an investor and maybe even the conversations you're having with your clients now, where's the best opportunities from an investor from a new build space? Yeah.
• 22:32
  I think really where we're having a lot of investors see success at the moment, as we said, is where we think we can build for lower than the replacement value. We also always try to – it's not always possible in building – but we do try to look at areas where you're going to have a landlocked situation pretty quickly.
• 22:47
  So some of these are big estates, so they might take a few years to build out. But once they're built out, you know it's going to be an established suburb. So a great example for us at the moment, if you're looking for examples, is around that Hammond Park, Mandogalup area. We're seeing houses that are in the established market consistently sell for, as we said, 50 to 100 grand higher than what we can build for.
• 23:07
  So then, you know, if you can get a large block, if you can add some features to the home that makes them more attractive than the ones you're seeing selling, we're feeling really confident with those for our buyers. I'm glad you said that, Al, because one of my biggest pain points is, you know, we talk about in the Spruikers and when we talk about Melbourne, we talk about Melbourne, Melbourne West.
• 23:26
  buying in you know those areas that are not landlocked it really concerns me so the fact that you said that where there is scarcity that's been built up does make a lot of sense um because i think there's a lot of people out there that you know it's easy i'm sure to find land that isn't built up right because you know perth just keeps sprawls and sprawls and sprawls you can go to byford wellard
• 23:49
  You can go to Alkermoss and then they'll build to two rocks at some point. But where I get concerned there is, you know, they're not landlocked. And if there's not scarcity, there will come a time when the market will cool and history will tell us that they're the type of markets that get absolutely smashed in their downturn.
• 24:04
  Yeah. And then you look at that landlocked situation there. Once it's all finished in a few years' time, you've already got great access to the freeways. You've got Coburn just up the road, the whole shopping centre. You've got the Dockers Stadium, not too far. There's just a lot going on in that pocket to be able to build something that's lower than the replacement costs. If it sells down in 24 hours, it's not going to really be around for long, is it? Yeah. Yeah. Okay.
• 24:29
  Cool. Let's wrap it up, Al. I guess we'll leave you with one last question. What do you see, where do you see the building industry going in WA in the next sort of 12 to 18 months?
• 24:38
  Yeah, so I think the big change we're going to see is you're going to see a lot more when you drive around. You're going to see a lot more steel and a lot more timber versus every home being double brick. So that'll be a big change. I do think there's a lot of people also looking at the infill sites. So we get a lot of inquiry and a lot of questions about blocks that our clients have realised are subdivision, duplex, triplex.
• 24:59
  The question there is can we actually get them through WAPC, get the approvals and get going? Because they're quite under the pump, would be fair to say, with turnaround time. Thanks for coming, Al. Great to be here. You've been listening to the Folio Property Podcast.