Property developers increasingly seeking ‘urgent’ assistance

Chifley Securities announced a 16 per cent rise in property developers seeking urgent financial help as their project sales and pre-sales have waned, due in part to “tighter lending controls”. 

“The tighter lending controls imposed by the major banks are squeezing both buyers and developers, with the result being unfinished projects, which will exacerbate the increasing shortage of housing as the population in the eastern states continues to grow,” Dominic Lambrinos, principal at Chifley Securities, said.

According to the non-bank lender, some banks have been asking for a 100 per cent debt cover or more on pre-sales this financial year as one of their conditions precedent.

Further, private lenders tend to lend with lower pre-sales levels but at a higher cost of finance.

“We expect that the tighter finance conditions and less investment activity will continue to challenge developers, and we are seeing more projects falling over completely,” Mr Lambrinos said. 

In the 2018-19 financial year, the Chifley Securities settled 72 loans ranging from $15 million to $50 million on developments ranging between 20 and 100 apartments.  

“Most of the loans are for developments located in the outer suburbs of the Eastern Seaboard’s capital cities, being 40 kilometres from Sydney’s CBD, 30 kilometres from Melbourne and 20 kilometres from Brisbane,” Mr Lambrinos said.  

“The developments... generally average around $26 million and are being challenged as purchasers, many of whom are young couples and families, [who] simply cannot arrange finance with their lenders or are spooked by the market slowdown.”

Mr Lambrinos added: “Meanwhile, many investors are now sitting on the sidelines, forcing developers to arrange alternative arrangements to complete their projects or hold on to them until sales recover – in many cases through price drops of up to 30 per cent.”

The non-bank lender also reported “strong” demand for its recently launched loan products to refinance unsold apartments and to provide finance for developers struggling to reach the required pre-sales. 

Chifley Securities increased lending to developers and landowners, from $1.8 billion to $2 billion in the 2017-18 financial year, with a large proportion of loans going to projects that are underway.

[Related: APRA changes to limit pull of ‘riskier’ non-banks]