APRA’s decision to increase the big four banks’ capital requirements will heighten the need for alternative funding sources for property development, according to a real estate investment management firm.
Qualitas group managing director Andrew Schwartz said while Australians are currently unusually dependant on the major banks for commercial real estate lending, this is set to change in the coming years as a result of their new capital requirements.
“The banks have their hands tied when it comes to making loans to property developers,” he said.
“As a result, there is a need for additional funding sources, which is where Qualitas fills the gap. Sometimes we provide this alongside the banks, through mezzanine debt, and other times we provide senior debt or equity. The key is that we provide developers with more capital and more flexibility.”
Mr Schwartz said the group is seeing strong interest from offshore investors who are interested in accessing the Australian property market.
“The depth of capital in foreign markets is huge – relative to Australia – and the weight of this money has compressed returns offshore, while they remain higher here,” he explained.
“Some investors are also attracted by the fall in the AUD. As a result, we expect 2016 will see increased momentum of foreign capital coming to Australia.
“This is good news for the market, as it will increase the options available to those who need capital from alternative sources.”
However, Mr Schwartz noted that accessing quality deals in the Australian market can sometimes be challenging for overseas investors.
“Some of the biggest managers providing commercial real estate debt and equity capital globally aren’t seriously competing down here – they operate on more of a fly-in, fly-out basis,” he said.
“As a result, they don’t have the networks of contacts or on-the-ground access to deals before they hit the market, or to know which partners will deliver a quality outcome and a strong return on investment.”