Developers unlikely to see boost in lending

28th Jul 2010

Queensland property developers can expect little improvement in the difficult lending conditions, Investec's Australian head of structured real estate finance said yesterday. 

At a Property Council of Australia function in Brisbane, Tim Johansen said the pricing and availability of funding was particularly tight in property development and that there also appeared to be some geographical bias towards lending.  "Banks have a large exposure to property so they don't really have a desire to grow their books and are, in fact, slowing down," he said.

"Project groups at the moment are having to fight for capital."

"What we also see is that most of the big banks seems to be more active in their home states, so CBA and Westpac seem to be more active in Sydney than they are in Melbourne or in Queensland."

"NAB and ANZ seem to be more active in Melbourne than they are in Sydney or the other states."

Suncorp has been Queensland's "prolific lender" in the market for a long time, Mr Johansen said, but its being out of action was "a poor outcome for this state in terms of lending, particularly for parts of Queensland like the Sunshine Coast."

On a broader level, Mr Johansen said major Australian property developers such as Lend Lease, Mirvac, Stockland, Walker Corporation and Goodman Group had been able to commit to more than $15 billion of new projects since the global financial crisis but much of that financing had come from capital raising activity on the stockmarket.

He said that 15 years ago 100 per cent of all bank lending to the sector had come from bank deposits.  That had fallen to 60 per cent now, leaving 40 per cent of funding to come from offshore wholesale markets, which had deteriorated.  Australian banks need to raise about $120 billion in annual funding in 2011, which might put further pressure on pricing and the availability of credit to new developments. 

"Banks are more conservative at the moment, so they are lending less and taking less risk."

"The debt markets are very constrained at the moment and platforms [for lending] are very expensive and very tight," Mr Johansen said.