The latest indication of the growing credit rationing for residential construction development lending is that all four major banks have now put a moratorium on non-Australian resident lending. The follow through for this will most likely be higher qualification requirements for presales to non-Australian residents.
Tactics by the Reserve Bank, APRA and other regulators to minimise an apartment oversupply in Australia is now clear; ration credit for residential apartment developments.
Judging by the abundance of applications which pass over my desk, and talks with other industry professionals, it is now “difficult at best” to achieve funding for new forty-plus apartment developments. Someone I spoke to on the matter was even blunter, stating that if you are not out of the ground then it is all over. He has started to re-assign staff to other profit centres.
Private lenders such as GPS are also pulling back. At GPS we are now only looking at applications for sub-thirty dwelling developments where the completed project is at, or below, the median prices for that area. Our preference remains for our core area in and around Brisbane. Within Brisbane there are areas where we have concerns regarding a potential oversupply of product.
Most private lenders currently have an abundance of loan applications. I can see the same thing happening in 2016 as occurred in 2015, in that, by the end of the year we had settled our budgeted number of loans for the year and had no more money to lend. GPS has a sound loan pipeline. We are now down to only having capacity to settle nine more loans in 2016.
Operators like GPS will continue to lend. In the current sector of the credit cycle, it is imperative to work with your lender, make sure they have investor support for the product you intend to develop and work within their funding cash flow.