Mosaic Property Group, a Brisbane-based company co-founded and led by Brook Monahan, is defying the ‘failure to launch’ syndrome facing the construction industry with the official unveiling last night of its 10th Gold Coast project in just four years.
Mosaic, which has chalked up $1.7 billion in projects across south-east Queensland in the past decade, last night officially revealed its newest Gold Coast development.
The $150 million Marella by Mosaic, planned for a corner site in Surf Parade at Broadbeach, is also the biggest development by value for Mosaic which in earlier years had focused on smaller boutique projects. The development will deliver 100 apartments across 30 levels with construction due to start in early 2023.
Marella is one of two projects planned by Mosaic for Broadbeach, with the company earlier this year lodging plans for a second tower comprising 29 levels and 96 apartments earmarked for a 1,488sqm site just a few doors away on Rosewood Avenue.
While Monahan acknowledges the constraints currently impacting the construction industry, he also concedes that ‘no one is immune’ to the challenges but notes that companies that are ‘well capitalised and vertically integrated’ have a clear market advantage.
“If you can’t control your destiny at the moment, you are probably in a bit of trouble,” he tells Business News Australia.
“But I do expect the challenges to start to ease over the next two years, because most of the work currently mooted to go ahead will not go ahead.”
Monahan says of about 40 towers currently in the planning pipeline in the highly active strip from Surfers Paradise to Mermaid Beach, he estimates ‘only about three to four’ will be built over the next two years because of construction constraints.
“That’s a function of lack of viability due to cost increases or being unable to find builders for these projects,” he says.
Mosaic, which has a team of about 150 staff, operates its own construction arm and Monahan says the company’s vertically integrated model is key to its record of project delivery. The private company has developed about 60 residential apartment projects in Brisbane, the Gold Coast and Sunshine Coast since 2012. It has also notched up its 10th project on the Sunshine Coast as demand for lifestyle projects remains elevated in Queensland’s south-east corner.
“While it still costs us roughly the same to deliver as any other builder, the difference is that given that we build our own product and control sales and marketing as a vertically integrated business, it means we can make decisions to operate our business off a slightly lower margin if the market response is strong enough.”
Monahan says the scale and quality of projects has led the company to develop a following of buyers that has supported sales across its projects. The company’s first Gold Coast development launched in 2018, Bela by Mosaic at Mermaid Beach, was the city’s best selling off-the-plan project in the 2019 June quarter.
“You need to have built a currency in your brand because people become nervous at times like these,” says Monahan. “You need to be able to show consistency over time by continually delivering what you say you will do.”
But there is a formula that Mosaic religiously follows that also drives its success, especially in the country’s most in-demand coastal markets.
“We’re very specific on the Gold Coast and Sunshine Coast,” he says. “We have to have a strong connection to water and that’s either river or beach, which has been really successful for us.”
While Mosaic has $1.7 billion products under its belt that have been completely sold out or under construction, the pipeline of future projects has climbed to $1 billion with eight projects to be launched in the next 12 months alone.
Monahan notes that the buoyant market conditions of the past few years have attracted a lot of new players to the property industry.
“It gives the perception that it’s easy to deliver projects. But good times can create soft businesses for those with underlying weaknesses in their business model, and tough times generally breed stronger businesses for those with robust brands and internal capabilities.
“The industry is very cyclical in nature, and we typically don’t like markets like the one we have experienced over the past couple of years.
“We much prefer the market we’re moving into which is a more normal market based on typical constraints and barriers to entry such as securing capital and rally understanding what the market wants and be able to respond to that.”
Monahan says that while supply chains and some material costs are starting to correct themselves, the biggest challenge for the industry remains the shortage of labour.
“The construction industry relies on about 85,000 skilled and low-skilled people coming in from overseas every year, so for two years we’ve had 170,000 people out of the labor force at a time of increasing demand and activity,” he says.
Apartment development outlook
Monahan sees the ongoing construction constraints eventually playing out into higher prices for apartments as they continue to lag gains made by houses in its south-east Queensland markets. This is supported by the ongoing upwards pressure on rents and very low vacancies.
“Apartment prices haven’t run like houses have over the past two years. There’s a massive gap of 60 to 70 per cent between the median house price and median unit price in Brisbane. I can’t ever remember it being that wide.”
Mosaic Property Group manages all of its buildings after completion and with about 2,000 apartments delivered in south-east Queensland over the past decade, the company currently has about 1,200 properties in its rental pool.
“We’ve never seen the pressure on rents like this before and that is purely a function of not enough places for people to live.”
Monahan says the construction price point is the real push-pull factor in the market which he says will support prices in the sector amid the current downturn.
“The Brisbane market alone is facing retail entry levels for apartments of at least $9,000 per square metre for investment-grade apartments,” says Monahan.
“There is this challenge where the cost of land, the cost of inputs and certainly the cost of construction have become so high that the replacement cost is almost more than where the market is in terms of secondary sales. That’s what puts a floor under apartment prices in Brisbane if the market softens over the next six to 12 months.”
With rents rising faster than inflation, Monahan says developers would be typically encouraged to build new products.
“The only reason the market hasn’t been able to respond is because it’s so expensive to build. I think those tensions will keep building and that’s why I believe apartment prices eventually have to go up in the next three years for new product. If it doesn’t, we’ll end up with nowhere for people to live as the industry will not be able to respond with new projects.”
With many proposed new developments currently on ice across the region, Mosaic sees an opportunity for acquiring sites for new developments in areas such as the Gold Coast. However, Monahan says these sites may be slow to recycle.
“There’s a massive weight of capital around at the moment, and it's fairly patient capital,” he says. “There is definitely a lot of buyers testing the market behind the scenes because they can’t deliver their project. The challenge is that more often than not they’re not A-grade sites.
“Unless there is some urgency, these sites will probably wait for the next cycle. There will be some opportunities come up and while we’re still a buyer, we’re a very cautious buyer and we’re very specific about where we buy.
“If it doesn’t suit our brand, we aren’t interested, and we will only pay market value for the right sites.”
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