For more than a year, property developers around the country have been crying poor about the state of development funding in this country.
Ever since the major banks were told by APRA to tighten their belts, access to development funding has dried up.
“This is a knee jerk reaction from our fair-weather friends,” they cried.
“It's all care, no responsibility from the Big Four.”
Well, let me break the news to you, friends. This is the new norm. But the question remains, how new is this “new norm” ?
According to a trusted property banking industry veteran of over 20 years, this looks a lot like the 1990s.
Unlike the poor farmers and the average Aussie Joe, Australia's developers didn't get a seat at the Hayne Royal Commission into Australia's banking sector.
It would have been quite the scene to wheel Harry Triguboff into 302 William Street to cry poor about the behaviour of the Aussie banks towards property developers.
(Who am I kidding? High-Rise Harry doesn't use banks!)
For those unaware of the struggle of Australia's property developers, it's bloody tough out there.
To get a residential project out of the ground, this is the sitch:
You can borrow about two-thirds of the total cost of the development
You need to stump up the balance in actual cash (or if you're really lucky, some mezz!)
You need to pre-sell at least 100 per cent of the total amount you borrow
You need to engage a builder that has a serious balance sheet, not just any Joe Blow with a shovel
You need to pay serious freight in interest (say, 6-9%)
You need to pay serious freight in line fees, establishment fees and other fees (say 3-4%) ... and the rest
You need to show them your books... and all of your books.
And if you do all of that, the banks are still as picky as the best looking girl at the school dance!
Straight up – there's less cash, it's harder to get and it's more expensive.
So will this change? Are we going to go back to 2013 and get the cheap money, the easy terms and the kitchen sink?
Doubt it. This is the new norm. This is the way it was 25 years ago. And this is the way it is now. Let's get use to it.
To learn more about how to fund your project, check out The Urban Developer's Development Funding 101 workshop – a case study approach to securing your project finance.