Gaining insight into business confidence in Australia can be as easy as scanning the skyline of a major city.

One construction project after another with no workers and abandoned tools is a clear indicator of troubled times – when conditions improve, cranes spring up like victory banners.

In east coast markets, especially Sydney, cranes are becoming a common sight as the construction activity roars to life. Prices for property are continuing their upwards lift even as developers race to complete new projects.

For law firms, this jubilant mood means more clients than property practices can tackle. Yet firms need to consider how long this frantic pace can last.

Boom times

Property and construction activity in Australia took a hit during the GFC, but the last two years have seen the sector return to strength.

“I think it’s as busy as it’s ever been,” Maddocks property and development partner Nick Holuigue believes.

This optimism is shared, if slightly tempered, by Holding Redlich head of property Richard Abbott, who believes the market is “as busy as it’s been since 2006”.

Market statistics back up this sentiment. According to Moses Samaha, general manager at research and credit analytics provider Veda, lending activity is on the rise for both large developments and individual transactions.

In the June quarter, Veda recorded a 20 per cent increase in businesses borrowing for the purpose of a commercial mortgage. Similarly, residential mortgage borrowing saw a significant increase in that period, according to Mr Samaha.

He believes record low interest rates are fuelling the spike in demand, which continues to outpace supply despite high levels of construction activity.

According to Mr Abbott, developers are eager to return to the market while banks are signalling a renewed interest in investment.

“The banks have an appetite to invest again. They withdrew from the market in 2008 when the GFC hit and they’ve now returned,” he says.

“That’s a major shift. It’s a sign of a fact that, in general terms, everyone has a lot of capital but not much transaction exposure.”

The most activity, Mr Holuigue believes, has been in the residential sector but other segments are also picking up.

“We’re seeing a great deal of activity on a variety of fronts, both in the land market, the apartment market and also in-bound investment from Asian capital,” he says.

However, not all states are benefitting equally from the market resurgence. NSW is the clear winner, Mr Abbott believes, underpinned by the Baird government’s development agenda.

“The NSW government has an ambitious infrastructure spend over the next five to 10 years – that’s in contrast with the other states that don’t have that money to spend,” he says.

Melbourne is in a comparable position, with “pretty good” investment fundamentals, Mr Abbott suggests. The Victorian government has also simplified and streamlined its planning processes, according to Mr Holuigue, making it easier for projects to get off the ground.

Western Australia, by contrast, is still suffering from the resources slowdown. Many Perth-based developers have turned their attention to the Sydney market, Mr Abbott has found. In addition, as mining companies divest their assets, supply of rental properties is climbing and dragging down rents.

In Queensland, the challenge lies in the government sector.

“The government is not spending any money any more,” Mr Abbott warns. “People who do projects are pretty quiet.”

For firms working in the busy states, legal teams are struggling to cope with the workload. Mr Holuigue says Maddocks is actively recruiting in property and construction, while Mr Abbott says Holding Redlich is “desperate to hire” experienced property lawyers.

The talent shortage is partly caused by the previous downturn.

“For a long period, there wasn’t much property activity and no one went into property,” Mr Abbott says. “Property was quiet after the GFC and the demand for property lawyers went down.”

He adds: “Now we need them, but [most lawyers] don’t have the experience because they haven’t been doing property work.”

Foreign affairs

A significant driver behind current market activity has been overseas investment in Australian property and construction.

Mr Holuigue says Malaysian, Singaporean and Chinese investors are all keen to invest capital in the Australian market. In addition, sovereign funds and super funds from other regions, including Germany and Canada, have taken an interest in Australian real estate assets.

These clients are often attracted to Australia by its stable regulatory and political system, reasonably good yields and strong investment fundamentals, according to Mr Abbott.

To work successfully with these clients, Mr Holuigue believes lawyers need a sophisticated understanding of cultural differences.

“It’s about knowing how to service clients of a different nationality in a way that relates to their needs and their manner of doing business. Our business is hiring more Chinese-speaking lawyers, for instance,” Mr Holuigue says.

Apart from technical legal expertise, it’s also vital to be able to offer offshore clients an insight into local market conditions.

“Lawyers need to understand the local market and what the returns are and what the risks look like,” Mr Abbott says.

However, this flow of clients may be jeopardised by government sentiment against foreign investment. A number of high-profile overseas buyers have been issued orders for compulsory sale of unlawfully obtained properties and Mr Holuigue warns other measures may follow.

“Unfortunately, what’s happened in recent times is that the message from both Federal and State governments suggests that we’re not open for business,” he says.

“It is a challenge because you’re trying to service clients as you do any clients, but the message you get from the country is that barriers are being continually put up to make it harder for people to invest.”

Thus far, however, the crackdown has been contained to second-hand residential property.

“We haven’t seen that political dimension impact on the demand and appetite for residential development. The sale of apartments from developers is continuing strongly,” Mr Abbott says.

Taking it online

Technology has affected every aspect of legal practice – but property is one of the first areas to fully automate a legal function.

PEXA, a government-backed platform, allows contracts of sale to be settled electronically, including document exchange, cheque processing and releasing keys.

PEXA CEO Marcus Price suggested the service is currently most used by lawyers representing ‘mum and dad’ investors. However, the platform is negotiating with developers of large- scale residential projects to use their process on major bulk sales.

Traditionally a development sale involving 400 or so individual contracts could take up to eight hours or more. PEXA would allow the contracts to be completed simultaneously, Mr Price suggests. While still in its infancy, he believes the service is rapidly expanding.

“PEXA predicts most property transactions will be via its digital platform by 2019,” he says.

Mr Abbott believes electronic conveyancing is fast-becoming a mainstay of the industry.

“Any law firm that is doing off- the-plan residential sales needs to look at electronic conveyancing and PEXA is obviously part of that,” he says. “We, like our competitors, are developing electronic platforms that are compatible with PEXA and other databases.”

Looking ahead

The current outlook for property lawyers is as shiny as a brand-new skyscraper. But how long can the good times last? Mr Holuigue believes the market can’t keep up its current momentum, saying it must “inevitably decrease”.

“My sense is that certainly could happen within the next couple of years,” he adds.

In Mr Abbott’s eyes, the market may take two different paths.

“One view is that it’s strong and will continue to be strong, because demand will continue to outstrip supply,” he says.

“Other commentators have a theory that maybe demand will equal supply in the near future and perhaps supply might exceed demand in a few years.”

However, one thing is settled – over the next 12 months, property is the place to be for lawyers.

“I think it will remain strong, obviously with the differentials across the states. Property and construction lawyers will remain busy and those lawyers that get a foot on government projects will be even busier,” Mr Abbott says.