Banks Ease Away From Apartment Lending | Kanebridge News
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Banks Ease Away From Apartment Lending

The move away from apartment development has left a gap for non-bank lenders.

By Kanebridge News
Thu, Jul 1, 2021 2:07pmGrey Clock < 1 min

Banks have been warier of lending to apartment developers over the past financial year, allowing the ever-expanding pool of non-bank lenders to enter the market.

According to analyses from property and construction consultancy Plan1, the banking sector’s exposure to apartment developers fell 7% to $32 billion in 2017, when apartment construction was booming. It was 18% lower than the peak $39 billion exposure of 22008.

As of June 30 of the 119,000 apartments under construction, worth about $46 billion once completed, the banks have exposure to approx. 70%.

The big four banks are, perhaps to be expected, wearing the brunt of the exposure with 76% of the funding coming from ANZ, CBA, NAB and Westpac. According to Plan1 co-founder and director Richard Jenkins, this figure represents the bank’s lowest share of the market since mid-2018.

While banks slow their approach to apartment development lending and increase their barriers to funding through pre-sales and large deposits, smaller, non-bank lenders are filling the void.

MaxCap, one of the nation’s leading non-bank commercial real estate lenders has been one of the more active entities in recent years.

In a recent interview with the Australian Financial Review, MaxCap NSW director David Oudshoorn outlined his confidence in the Sydney market over the next few years.

Mr Oudshoorn isn’t the only one bullish about the market with Qualitas, Wingate and Pallas Capital all providing funds to developers.

The nation’s biggest lender – the Commonwealth bank – revealed in its half-year results in February that only 35 of its 77.5 billion exposure to commercial real estate debt was to developers.

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House values continued to fall last month, but the pace of decline has slowed, CoreLogic reports.

In signs that the RBA’s aggressive approach to monetary policy is making an impact, CoreLogic’s Home Value Index reveals national dwelling values fell -1.0 percent in November, marking the smallest monthly decline since June.

The drop represents a -7.0 percent decline – or about $53,400 –  since the peak value recorded in April 2022. Research director at CoreLogic, Tim Lawless, said the Sydney and Melbourne markets are leading the way, with the capital cities experiencing the most significant falls. But it’s not all bad news for homeowners.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3 percent,” he said. “That has now reduced by a full percentage point to a decline of -1.3 percent in November.  In July, Melbourne home values were down -1.5 percent over the month, with the monthly decline almost halving last month to -0.8%.”

The rate of decline has also slowed in the smaller capitals, he said.  

“Potentially we are seeing the initial uncertainty around buying in a higher interest rate environment wearing off, while persistently low advertised stock levels have likely contributed to this trend towards smaller value falls,” Mr Lawless said. “However, it’s fair to say housing risk remains skewed to the downside while interest rates are still rising and household balance sheets become more thinly stretched.” 

The RBA has raised the cash rate from 0.10 in April  to 2.85 in November. The board is due to meet again next week, with most experts still predicting a further increase in the cash rate of 25 basis points despite the fall in house values.

Mr Lawless said if interest rates continue to increase, there is potential for declines to ‘reaccelerate’.

“Next year will be a particular test of serviceability and housing market stability, as the record-low fixed rate terms secured in 2021 start to expire,” Mr Lawless said.

Statistics released by the Australian Bureau of Statistics this week also reveal a slowdown in the rate of inflation last month, as higher mortgage repayments and cost of living pressures bite into household budgets.

However, ABS data reveals ongoing labour shortages and high levels of construction continues to fuel higher prices for new housing, although the rate of price growth eased in September and October. 

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