The economics of residential development and construction have changed dramatically over the past five years and the industry is now at a point where integrated builder-developers are often best placed to get projects out of the ground. This has not always been the case. Traditionally, private real estate credit financiers such as Centuria Bass Credit (CBC) have preferred to fund projects where the developer works with a third-party builder on a fixed-price contract.

However, that model has come under pressure this decade due to sharply rising material and labour costs caused by COVID-led disruption, which has been instrumental in the collapse of numerous building companies. The scale of change is perhaps unprecedented. According to data provided by Newpoint Advisory, since 2021 more than 11,000 building related companies in Australia have gone out of business¹. This has opened a window of opportunity for builder-developers, whose projects CBC is increasingly funding.

That’s because we’ve found that builder-developers or developers integrated with their own building company are achieving efficiencies that provide for increased profit across projects. Builder-developers also have an advantage because of more flexibility around their feasibilities, projects and construction programs. This wasn’t the case immediately after COVID.

Before costs escalated so dramatically, there was a benefit to sponsoring a developer who had a separate third-party building contract. This allowed for more separation between the builder and developer so there were no potential conflicts of interest or grey areas. However, with increased costs and a more challenging construction environment, times have changed. As mentioned, many builders have gone out of business while others remain cautious.

We are now seeing that builder-developers are among the most frequent purchasers of permit-approved development sites, which means projects can be delivered faster and with greater certainty.
A good example is a builder-developer marketing townhouses in western Sydney we backed with a residual stock loan. The developer didn’t want to get pre-sales up front and was progressively selling down the project at above valuation prices - the ideal strategy in a rising market.

It’s been an excellent project on many levels, meeting the market with a quality product, delivering strong returns for both the developer and our investors.Looking ahead, the good news for everyone involved in residential development is that construction material and labour rates have stabilised.

In its Global Construction Intelligence Report, Turner & Townsend said construction costs in Australia and New Zealand rose 4.7% in 2024 and is forecasting increases of 4.2% this year and 4.6% in 2026. This gives builders more confidence to quote jobs accurately and fairly while also allowing themselves a reasonable margin as a buffer for any unexpected costs.

Combined with potential for upside in gross revenues and a better interest rate environment, we are positioning ourselves for an uptick in demand for construction loans and are assessing a number of new builder-developer opportunities in addition to those projects already under way. However, residential development is such a dynamic industry, and there is so much incoming government financial and planning support for building new homes, that we do expect a swing back to the orthodox third party builder and developer relationship over time.


1. https://www.newpointadvisory.com/2025-tier-2-builder-metrics/