What is happening in the Australia residential property market?
An official Australian analysis team has outlined the pre-sales risk mitigation in the residential property development sector. They express their observations and outlook, which is very insightful for property investors and developers all over the world.
An increase in supervision by APRA and ASIC is changing the face of the financial landscape in Australia for developers and pre-sales purchasers. APRA has placed commercial real estate lending growth restrictions on banks all across the country. Bank-credit contracted in 2016 and the current situation is still a tight one.
For those looking to invest in huge developments then sufficient bank funding is still available. The banks and these companies will not turn down excellent ideas that will bring their country wealth and opportunities. However, it may come at a higher cost and with more policies to abide by. This is unfortunate for other customers where bank-funding options is a necessity but will be hard to obtain, and now a lot more emphasis is placed on the smaller details. This is leading to slower approvals, longer waiting times.
Banks are imposing more restrictive pre-sales covenants on new facilities and improving pre-sale movements. Commercial pre-sales that need attentiveness can give banks more stability on the basis of sales, as well as providing information on market recognition of the development and willingness of buyers willing to settle.
Non-bank lenders are looking to exploit the commercial market lending opportunities that the banks have left behind. Despite returns being attractive for non-bank lenders, pricing at the right level is critical for sustainability. There are so many aspects to lending that need to be considered in the real estate market process, that affect Australia residential property and other areas of the real estate industry.
Pre-sales investors in the current cycle would have felt confident in gaining finance at settlement once made a purchase. However now, a lot of investors and developments may face difficulties and serious delays to get the right financial backing needed, which could affect long-haul property development plans.
However, past performances cannot accurately guide future predictions as the real estate market can change and reshuffle so quickly.
Despite pre-sales weakening into this year, the wider residential market has enjoyed strong price growth with high auction clearance rates. The Australia residential property market has seen the value of their real estate market soar. In Sydney the price growth rate has been 19% up on last year, this is a significant increase.
In the short-term period, higher fall-over rates will be a benefit to some developments as they will be able to re-sell stock at higher than contract prices. Generating more profits in this way is a positive element, but over time, pre-sale contract fall-overs may become very expensive for developments in the real estate market.
Written by Gemma Smith