News Archive 2018
Market News - January > March 2018
With barley the champagne cork out of the bottle, the 2018 year got off to a flyer as we received written confirmation we would be receiving a formal offer for $600,000 (net) in mezzanine funding, to assist one of our junior clients with much needed 'gap-funding' for his proposed 5 x level, multi-unit development located in Troughton Rd, Sunnybank, QLD. Needless to say he was most relieved, as he had been sweating on receiving this proposal over the Xmas / NY break.
The requirement for funding of this type, in the current market, is not unusual given the unit and apartments 'over supply factor'. Not much more than 12 months ago, the same project, could have been easily funded with senior debt alone. Lets hope there will be a happy ending for all parties in this endeavour.
Market News - April to June 2018
With the Banking Royal Commission in full swing and the Sydney and Melbourne property markets having moved well into the downside trend in terms of capital growth, banking and capital providers, and in particular, the banks, also followed suit by tightening further credit even supply, notwithstanding the excellent growth being experienced in some of the other smaller capital cities, and also in some of the major regional areas.
The Apartment markets in Melbourne Sydney and in particular Brisbane have also been hit hard by 'Over Supply', needless to valuations for units in these cities have come back significantly with the buyers having pole position, and developers become increasingly under the pump.
For those in the process of doing early stage developments or looking to acquire development sites, now is the time to start working out when the over-supply apartment stock will finally be absorbed into the market so that when the cycle again turns developers can once again be sitting in the box seat with any proposed new apartment releases.
In general terms however, townhouse developments have stayed the course and anyone looking to get into this type of development should not be discouraged too much, as there is still plenty of credit around to fund these types of deals, as well as 'residual apartment stock' which seems to have become a bit of a favourite, given declined apartment prices.
Market News - July to December 2018
With property experts forecasting strong reductions in residential dwelling commencements, following on form the numbers in the last Quarter of 2018, the actual figures commencements are likely to be much higher, meaning the impact on the broader economy and, on GDP growth, is likely to be even more significant on both.
What does this mean for Developers?
Given the risk indicators, borne from current residential dwelling start numbers, the resulting issues for Developers will be such things as;
a failure to meet pre-sales and sales targets and generally lower sale volumes, meaning lenders will impose a very high rate of pre-sales as a condition to proceed to commencements;
less focus on larger developments from the pool of available property marketers, particularly on units in areas that are harder to sell;
very low Valuer confidence, hence lower core valuation values;
very low risk appetite from lenders; including blanket lending restrictions and even the imposing of ‘black-list’ no-go areas, meaning that the ‘pipeline’ of available funds will be progressively shrinking;
significantly lower LVR (i.e. higher deposit) for 'off-the-plan' buyers
difficulties getting finance from alternative financiers.
Excerpt from a recent media article by Riskwise Property Research 20/12/2018
In the current market conditions, with many areas having high levels of stock (there are 255,333 units in the pipeline in the next 24 months in Australia equating to 9.8 per cent of current stock), many developers are struggling to meet at least one of these targets.
“Also, based on a report from property advisory group Urbis, only 46 apartments were sold in Sydney in the three months to September. This represented only 13 per cent of the market, which shows how soft it is. The story was similar in Melbourne which saw new apartment sales sitting at just 330 units, only 17 per cent of stock.
The HIA New Home Sales report this month shows the number of sales during the three months to October are down by 10 per cent compared with the same time last year.
It states: “In the market for established homes the credit squeeze has been reflected in a material drop in transaction volumes and falling prices. In the new home market we are seeing fewer new builds going ahead.”
In addition, the number of new homes approved for construction in the month of October 2018, dropped by 1.5 per cent from the previous month and 13.2 per cent from October 2017. Following the ABS release in relation to the total homes approved for construction in October 2018, HIA Economist Diwa Hopkins said: “A downturn in new home building has long been anticipated. The current credit squeeze however risks the pace and magnitude of the decline developing into something faster and greater than expected. This would result in a greater drag on the wider economy”.
As we move into 2019 it is clear that property markets are closing in on bottom of the cycle, and so some level of caution will be needed in Q1 2019, however, this also means Developers will be able to benefit from cheaper land entry pricing as they plan out their next developments.
And .... despite the doom and gloom spun by media and property analysts alike, there is still plenty of money available to fund reasonable to good property projects in most locations, and we are even aware that some of our current Fund Manager clients have discounted their interest rate in order to concentrate on better quality, bank-type deals.
Industry News is not that negative after all .... Roll on 2019 !!!