Predictions of price bubbles and over supply in capital city apartment markets and reported difficulties in obtaining finance have not translated into a gloomy outlook among stakeholders involved in property development.
A large survey of stakeholders located principally in Sydney, Melbourne and Brisbane has shown nearly half to be optimistic or very optimistic about the outlook for residential apartments’ markets. Nevertheless, a substantial 37% of respondents are either concerned or very concerned about prospects in those cities.
The survey of more than 900 individuals was conducted recently on behalf of property advisory firm, Development Finance Partners (DFP).
DFP Director, Baxter Gamble, says the survey results, in particular the optimistic outlook among many respondents, are encouraging but do point to a number of significant hurdles for developers.
“More than one-third (35%) report that their biggest difficulty currently is obtaining development sites whereas just 11% report ‘rising costs’ as a concern.
“We were particularly keen to understand how stakeholders viewed obtaining finance,” Mr Gamble said. “More than 37% of respondents listed obtaining bank finance as the biggest finance-related issue facing them. Another 38% said that investors/purchasers being unable to secure finance was the single, biggest issue confronting their projects.”
Mr Gamble said given those responses, it was unsurprising that more than 80% of respondents had investigated alternative financing arrangements. “One quarter had looked at mezzanine finance; 35% at a joint venture arrangement and a little over 23% had investigated preferred equity.
“It is pretty clear that, despite the majority optimistic view of the sector, financing is the most important issue that determines the success or failure of a project or, even, if it is to proceed.”
Mr Gamble said DFP still held strongly to the view that the right projects in the right locations still represented manageable risk.
“A vanilla view of apartment projects as fundamentally risky is simply wrong. To tar all projects with the same brush doesn’t do justice to those developers who have projects that are well located, have good pre-sales and who build quality developments in high demand.
“We generally have little difficulty in raising funds for these projects,” Mr Gamble added.
The Survey was conducted among 928 individuals in May 2017
Respondents were located in the following markets:
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