In Fundamental Changes To The Legal Profession Over The Past 17 Years And Key Predictions – Part 1 I looked at how changes within estate law have arisen due to shifts in our family dynamics and the types of familial relationships that people now have.
I also examined the fundamental changes to corporate and personal structuring advice over the past 17 years and how the legal sector must also evolve and adapt to stay ahead.
In this follow up article, I reflect on key changes within the property development and hotels, accommodation and resorts sectors.
The property development landscape and property market have also dramatically changed since the 2008 global financial crisis (GFC).
The greatest change is the way banks lend money to fund property developments. All major lenders have significantly increased their loan to value ratios (LVR). Lenders appear to be allergic to risk, with some of the major banks only lending to 70% LVR with pre-sale requirements well above those ratios.
While the full effect of the Banking Royal Commission is yet to be felt, our view is that if banks were increasingly cautious about lending money for property development after the GFC, they are now completely risk averse. This means that if property development is to occur, a property developer generally needs to have a large amount of liquid capital.
In addition to the market’s concerns about tighter credit conditions are the concerns about falling property prices. Our view is that these concerns are probably linked and a fall in property prices means that property developers may have trouble meeting their commitments and banks may step in. If this occurs on a large enough scale, it of course has broader consequences to the economy as a whole.
All of this is occurring in a market that certain commentators suggest is saturated with apartments, particularly in Melbourne and Brisbane. Potential purchasers of apartments are being deterred by the credit squeeze and scrutiny over their expenditure commitments in a market where prices are continuing to fall, leading to market uncertainty.
Sellers are now far more astute, so developers picking up sites ‘on the cheap’ seem to be few and far between.
A brief internet search by any person can arm them with more information about a site’s potential value than you could obtain 20 years ago as a sophisticated seller undertaking significant enquiries. Sites costing and significantly increased consumer protections are resulting in developments being delayed and the risks to developer constantly rising.
All of this changes the way property lawyers must advise their clients in the property law space.
Given the economic consequences of having buyers be able to terminate or the deal turning sour, developers need to have far more robust agreements and documents.
The accommodation industry has undergone similar major changes over the past 20 years, and the changes continue to be ongoing and fluid.
All major lenders have changed the terms on which money is lent and tightened their criteria for lending. This includes requiring greater up front capital which in the accommodation industry can be a significant sum.
Speaking with advisers that deal with the major financiers in this space all day, every day is just one way we add value for our clients.
The law differs from state-to-state and frequently changes, especially in relation to registered securities, body corporate rights and responsibilities, the owner’s relationship and interaction with the body corporate, franchise relationships and commissions under franchising law and lessor and lessee relationships.
The regulatory changes are significant and prudent advice is required to make sure the business is compliant and effectively operated.
To further complicate matters, the recent cyclones and floods in North Queensland and South East Queensland have caused insurance companies to alter their policies regarding what they will and won’t insure.
We have come across certain areas in Queensland that are almost uninsurable.
The end of the mining boom has also seen key geographic areas that were once thriving, now struggling. This has had a flow on effect on the actions of banks and insurance companies.
This change has also seen landlords re-entering into possession, which prior to the GFC and the end of the mining boom was rare. Landlords, tenants and their advisors, including their legal representatives, have had to become flexible and strategic in how they deal with these changes.
All of this changes the way our accommodation specialists advise our clients and are reasons why experts in the field such as David Burrough and David Adolphe are essential. It is their relationships with major agents, brokers and specialist accountants, which enable us to provide an expert service for clients.
Advances in technology and automation have seen dramatic changes in our service based industry and in our clients’ businesses and personal affairs.
We have seen great advancements in helping us work smarter and more efficiently for our clients. I believe technological changes have also helped us define and push forward the value of real professionals and experts in our clients’ space.
Clients are more aware and knowledgeable, not least because of the ease of access to information through technology. In most cases this is a very good thing, but there is a risk it may lead some to believe they understand the law sufficiently to manage their affairs.
However, as with everything, you don’t know what you don’t know. We find that clients having access to technology and information means that they have more prior understanding which enables us to quickly cut to the core of their issues. But it is at that critical point of decision-making that our interpretation of the law, coupled with our experience of balancing risk and other factors such as cost and business efficacy, results in our advice and support being even more valuable to our clients.
The traditional law firm is an outmoded concept. Clients are seeking highly responsive service and modern and innovative solutions that better meet their ever evolving personal and business needs. Our primary driver is to deliver outstanding client-centric service and to be our client’s strategic partner.
At Hillhouse Legal Partners striving for that service standard will never change. Irrespective of our rapidly-changing world, we uphold the basics of quality, respect and highly responsive and exceptional customer service provided in an approachable and human way.
The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.