The Apartment Sales Sprint
The Apartment Sales Sprint
We have worked on many apartment projects over the past 15+ years. I can think of only 2 of those projects that failed to proceed once the sales campaign started. One was because we sold most of the apartments pre-DA, and the Council rejected the DA at the 11th hour. The other one was because the developer decided on a fundamental building methodology change (from modular to conventional concrete construction), and the project stalled.
During the past 3-5 years, we have seen other projects (thankfully not ours) fail to proceed for a number of reasons. The developer or builder goes broke; poor location; failure to 'design to market'; a Global Financial Crisis or pandemic, or a poor sales strategy. We always discuss common challenges in detail with our developer clients. In the 'post covid' era, we have found that apartment purchasers need to be aware of these issues as well.
Traditionally, the main factors an apartment purchaser might want to understand about a new apartment opportunity were :
Location + project details. Is it a good location, with a great design and liveability?
Who is the developer? Do they have a track record of delivering good projects?
Who is the builder? Do they have a track record of delivering good projects and good quality?
Through the slow pandemic and post pandemic market, we saw numerous projects fail to proceed. Now we are in a post covid construction environment, where construction costs have risen and keep rising, and there is increasing scrutiny & regulation of the apartment construction sector (in NSW we have the NSW Building Commission). Apartment purchasers and their banks have been cautious, and people have been waiting for the recent interest rate cuts. Buyers don't want to be committed to an apartment in a project that might not proceed.
So the traditional checklist of project ✅, developer ✅, builder ✅ now needs to include sales strategy, or rate of sale. Savvy purchasers should ask questions regarding rate of sale. Why?
One of the reasons for project failure we have seen during a slower market is simply that a project sells too slowly. In many cases, a developer's financier will commit to construction funding subject to the project achieving a certain level of pre-sales. Usually, the developer has to sell most of the apartments before construction funding can be accessed. During the sales campaign, construction costs keep going up - but the sales contracts are at a fixed price. So if the sales process drags on, rising construction costs mean those early sales contracts are no longer profitable. If it really drags on - the project stalls. Instead of 'positive jaws' on the graph, we get the jaws of doom - costs outrun revenue enough to make financing impossible.
So - for apartment purchasers, it pays to get a feel for sales velocity. Are enough people consistently buying into the project to allow it to start? That’s a good thing.
And, for our developer clients (or prospective clients) - we have refined our IP to build a sales strategy that :
creates strong momentum from well before the public launch ✅
gives buyers confidence to proceed to exchange contracts ✅
uses purchasing insights to control inventory release (avoid unsold silos) ✅
provides multiple opportunities to escalate prices - to help avoid the jaws of doom ✅.
This strategy needs to be in place WELL BEFORE you start the sales campaign. Success starts months before you have a display suite, or a scale model, or a CGI.
