Non-bank lenders are putting up tight reins, having identified various risky property industries where they will not offer loans to home owners and developers in coming months.
In an industry that provides lending services at higher prices to the high risk projects, the current global pandemic has forced many lenders to re-assess their customers’ profiles. As at now, lending within Australia’s non-bank industry is valued at over $50 billion.
This comes at a time when the figures for sales transactions for office, retail and residential sectors dipped drastically and even though the sector is still providing some lending services, it’s restricted to the most strategic and top notch developments.
Chifley Securities which currently has a clientele of about 140 lenders providing loans ranging between $15 million to $50 million, notes that it has gone beyond lending on geographical basis to focusing more on asset class.
As the Australian economy continues to slow down, Chifley has already identified some retail spaces, Greenfield residential developments and retail spaces as well as industrial and hospitality oriented commercial premises as the sectors it won’t offer financing in the second half year of 2020.
According to Dominic Lambrinos Chiefley Securities’ principal, these sectors are expected to experience problems in the next 12 months as the economy and the property development space continues to slow down.
“We have seen a drop-off in investors in recent months and the latest, lower home-finance figures indicate there are speed humps ahead which we all have to work how to manoeuvre around,” Mr Lambrinos said.
“We have definitely gone from examining loans on a geographical basis to asset class.”
He added that areas such as construction and development of strategically located boutique residential hotels and related projects, boarding houses or student accommodation facilities will definitely be continuously supported.
“These sectors, especially in the build to rent area, are showing solid long-term prospects with continued demand, despite the short-term pain being experienced.”
The overall demand for assets has been declining as figures from JLL Australia reveal that transaction volumes are poised to plummet sharply in 2020.
In a statement, Fergal Harris the head of capital markets at JLL-Australia noted that the pace of the country’s economic recovery will certainly have substantial implications to commercial properties though the first-time policy measures being put in place as stimulus for the pandemic have provided great support equity markets across the globe, “limiting the denominator effect relative to the GFC in 2008/09”.
He further stated that moving forward; the current conditions in the credit market are likely to play a crucial role in liquidity of real estate markets.
“Private debt markets are continuing to operate for well-rated borrowers. For core assets, we have only seen a 10 to 25 basis point movement in post COVID-19 pricing for a five year loan,” Mr Harris stated.
“Across Australia’s commercial real estate investment assets, a clear hierarchy is emerging, with prime grade industrial & logistics and commercial office proving to be the most resilient sectors.”
The biggest income risk is within the retail industry, with secondary grade assets across all industries set to experience higher space vacancy and cash inflow challenges.
According to the director of The Data App, a pro-tech specialising in research and advice, retail deals have generally “slowed to a trickle in June”.
“TDA estimate both the value and volume of shopping centres transacted, in trend terms are now at the lowest level for eight years,” said Mr Ellis.