Over the past few years, the Australian development market has been severely hit by the credit crisis by the reduction in primary lenders and also the remaining banks appetite (or sometimes lack of it) to fund anything that they deem to be “risky”.

“Risky” has taken on a whole new meaning in the last few years and as we’ve talked about before you could have the best site in town, with an award winning design and 100% pre sales – but this in some instances still proved too risky for the banks in an uncertain market going forward.

To be fair to the banks, we are seeing increased lending activity in some sectors of the market, generally not large builds but certainly in the up to $20m market and more recently to a limited extent in the $20m to $100m sector with some isolated builds over $100m, so some of the banks, at least seem to have a developing appetite for deals.

A significant issue raised by a number of banks, is the quantum and quality of equity being put forward by developers with lenders wanting to see “real dollars” as a means of mitigating their risk further.

Obviously there are significantly differing market risks at play as we speak, with property markets across the country varying greatly in terms of rise or fall in value.

Melbourne has been pretty steady in terms of new development for us over the last two years.

Sydney has been through a substantial quiet time but now appears to be gaining some momentum with some lenders realising opportunity exists in certain physical areas where development has been scarce in recent years and as a result market pricing has held up and rental pricing has increased significantly.

South East Queensland is still problematic with the banks still holding many “difficult” loans on their books that may take some time to realise any value, let alone return on investment. General market sentiment, in particular business investment, remains weak as a result of a continued lack of confidence and the perception of a lack of credit in the system.

Now that the banks have started to relook at property lending in a more energetic way, there will also no doubt be some property workouts and possibly more developers placed in administration or receivership, with the banks now able to dissect their problems more analytically than over the past two and half years where there were so many problem parts of the economy, not just property.

There are (and always have been) other forms of capital available in the marketplace in the form of equity from private investors, large investment houses and in some cases offshore funds. We have also seen an increase in equity partnerships being offered by the larger contractors as a means of securing workload and as an attempt to avoid a competitive tender situation.

These sources of capital are traditionally more expensive to borrowers, but these lenders/equity participants traditionally enter into these markets as they see significant potential upside in some deals, not just on the debt/equity terms but also in the potential take out in markets that desperately need new property stock.

Where to now in terms of construction costs?

We will over the next few weeks release our updated construction cost data cards, looking at how costs have changed over the last 12 months and where they might be expected to go from here.

Contact 

Our strategic, cost effective advice will best position your property for the future.  Call Napier & Blakeley today if you want further information or regarding any other Napier & Blakeley services:

Melbourne - Craig Smith           03 9915 6300               csmith@napierblakeley.com
Sydney – Peter Hammond         02 9299 1899         phammond@napierblakeley.com
Brisbane - Paul Cosker             07 3221 8255            pcosker@napierblakeley.com 

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