Developers Seek Non Bank Finance Amid Lower Presales

Tighter finance conditions and less investor activity in the market continues to challenge developers as the retreat of major banks from commercial real estate lending gives way to a rise in demand for alternative lending.

A growing number of development projects are being backed by non-bank lenders as developers and investors alike struggle to secure finance through mainstream banks.

Non-finance group Chifley Securities reported a 16 per cent rise this financial year in property developers seeking financial help as pre-sales and sales in their projects slow.

Chifley Securities principal Dominic Lambrinos says most of the loans are for developments located in the outer suburbs of the Eastern Seaboard’s capital cities.

“Being 40 kilometres from Sydney’s CBD, 30 km from Melbourne and 20 km from Brisbane,” Lambrinos said.

“The developments generally average around $26 million and are being challenged as purchasers, many of whom are young couples and families, simply can not arrange finance with their lenders or are spooked by the market slowdown.”

Related: Developers Offer ‘Free Mortgage’ Incentives

In 2016 APRA increased the level of capital the major banks needed to hold as a "buffer" against their loans, prompting lenders to rethink the composition of their loan books.

Many banks responded by tightening finance for residential developers through measures including stricter pre-sales requirements and lower maximum loan-to-value ratios.

While some banks are asking for a 100 per cent debt cover or more on pre-sales as one of their conditions precedent, private lenders will usually lend with lower pre-sales levels but at a higher cost of finance.

Privately-owned Chifley says it lifted its lending to developers and landowners from $1.8 billion to $2 billion during the 2017-2018 financial year, with a large proportion of loans going to development projects now under way.

Developer Trenerry Property Group kicked off construction on its $345 million mixed-use project in Melbourne in March this year after announcing it had secured a major private funding deal with real estate investment manager Qualitas.

Qualitas provided $250 million in senior debt to fund construction of the five-tower project in Melbourne's West End.