by Marshall Condon | September 6, 2021
This article was originally posted by Development Ready on 5th September 2021.
Rock bottom rates and flexible loan terms have created a major opportunity for Australian property developers.
It’s no secret that demand for apartments, particularly in Australia’s inner-city markets, fell over 2020. The impact of COVID-19 on detached home values has been significant, with the price gap between houses and units widening.
National house values are up 18.4 per cent over the 12 months to July 2021, while unit values have risen by less than half this amount, up 8.7 per cent, according to CoreLogic.
But surging prices for detached homes could soon be pushing prospective homeowners towards units.
That’s the latest forecast from CoreLogic’s August update. It noted that with affordability pressures mounting across the detached housing sector, we could see more demand gradually deflected back towards higher density housing options.
This forecast comes after the latest HIA Housing Scorecard noted the strength of the apartment market in New South Wales.
According to that report, multi-unit commencements in Sydney have returned to pre-pandemic levels and recent approvals support this upward trend. Meanwhile, the HIA claims that the number of medium density units gaining approval in New South Wales has also reached a 25-year high.
Prospective buyers aren’t the only ones with a healthy appetite. There is also plenty of capital in the market trying to find a home.
Rate cuts for construction finance
The cost of funds has come down significantly for construction finance. Non-bank lenders are eager to fund mid-tier developers, and many are offering first mortgages with a 70 per cent LVR.
Pre-sales, which traditionally have been a make-or-break condition for lenders, have become far more flexible as non-banks and alternative lenders compete to fund residential developments.
One major game changer in recent years has been the emergence of residual stock solutions, giving lenders the security to take on developers more readily than they have in the past. Residual stock loans have quickly become a competitive corner of the construction lending market, with rates halving from 10 per cent to 5 per cent in some cases.
Fast turnaround times
With fresh demand for units and more affordable finance options, the need for speedy financial solutions has never been greater. Gone are the days when developers will wait months to get a term sheet back from a lender.
Wefund has invested heavily in its proprietary platform, creating an innovative digital experience for property developers that has reduced turnaround times significantly. Term sheets are typically back within a week, two at the very latest.
All offers are then analysed by our team of award-winning commercial finance professionals, giving developers a clear picture of ROI, flexibility of terms, and a full breakdown of rates and line fees to identify the true cost of funding.
The construction lending market is becoming increasingly dynamic, which means debt advisory is critical; property developers need to make sure they are capitalising on opportunities with the best finance facility for their next project.