Will the banks return?

Blog

There is still a segment in the development industry who believe that the banks will re-enter the Brisbane market in the near future.

The requirement of 100% debt coverage from preconstruction presales is not set by the banks. It has been set by their regulator, Australian Prudential Regulation Authority (APRA). It will require considerable political pressure from the banks to get APRA to relax the debt coverage requirements.

I believe it is fair to the say that the banks do not presently enjoy much political capital and have more pressing issues to pursue.

If the banks are presently restricting investment lending to appease the political and public pressure upon them, why would they be wanting to fund more stock into the market?

Surely it makes more sense for the banks to use the current political mood as a reason to increase rates on investment lending.

I know I would much prefer to lend less at a higher margin. You make the same profit for less effort and risk.

Alternatively, the property market may change so that preconstruction presales are again achievable at a realistic cost. This will all be about supply and demand. There is still too much supply for the demand to build to a sufficient level in the near future.

While the pull back by the banks has been good for business for GPS, I would like to see a relaxation of the APRA rules as to debt coverage from presales so there can be a moderated return by the banks.

Non-banks only have the capacity to fund a small fraction of the market. My concern is that there will be no action by the regulators until demand has intensified to the extent that no changes will need to be made to the rules.

This will result in everyone being able to get preconstruction presales and another boom.

My preference remains for there to be a more consistent property market without the booms and credit crunches.

I know I am dreaming on this one.

Recent updates

View all updates

When the funding dries up

I continue to see too many instances where funding for a...

Builder cashflows are suffering

Following several conversations with builders GPS has commenced a program to...