Finance woes plague VIC residential developers

by Julia Corderoy08 Jul 2016
Three out of five residential property development companies in Victoria believe finance is becoming increasingly unavailable through traditional lending sources, such as banks, and it could affect the future of residential construction in the state.

These are the results of a survey conducted by the Victorian arm of The Urban Development Institute of Australia, who surveyed 50 individual development firms in the state. Further, more than three quarters (78%) of firms believe that at least one project will be delayed due to the current lending environment. Almost half (46%) expect these project delays could exceed six months.

“The Institute’s survey findings have measured and confirmed the groundswell of concern about volatility, market conditions and funding constraints in Victoria,” said the Institute’s Victorian chief executive, Danni Addison.

On top of access to finance, Addison said current global uncertainty is also contributing to concerns within the development sector.

“There’s a broad expectation that there is a wealth of capital available in the global markets. However with increasing uncertainty as a result of Brexit, the upcoming US election and even our own domestic election, that’s simply not the case,” Addison said.

Speaking to Australian Broker, Melbourne-based Mortgage Choice franchisee, Jonathan Lee, said he has seen this affect his clients and change the way he approaches this type of business.

“We have started using alternatives to the banks more. Banks usually want to have 100% debt coverage,” Lee told Australian Broker.

“Typically if you haven’t got the history behind you of doing a lot of the development, then the banks aren’t open to taking on that sort of risk.”

Four out of five residential developers operating in Melbourne’s CBD have expressed concerns and a decreasing level of confidence in the sector.  

However, Lee said this presents an opportunity for mortgage brokers.

“I think it is an opportunity. Where the big banks would usually help the developers out but are now tightening up and are not helping them, if [the developers have] been banking with them for a long time then the relationship starts to break down. 

“That’s when they start contacting brokers. Brokers have access to other lenders which the client may not have heard of or may not have thought of,” he told Australian Broker.