IF there is one subject that unifies people across the property sector it is concern with the lending policies of the banks, which have been criticised for being overly strict and not really understanding the land development sector.
Australand general manager residential WA, Tony Perrin, describes access to finance as one of the biggest issues facing the sector.
He says tight lending policies have greatly restricted investor activity.
“The opportunities for investors that were around six years ago, where lots of people were buying blocks with no intent to develop, basically gambling the stock of land, was due to predominantly the finance market being very liquid and easy to get finance,” Mr Perrin told the recent WA Business News forum.
“You could buy an apartment off the plan and speculate on investment, and you could get investment choices very easily.
“That part of the market is far more constrained now, there are far less people in there who are, firstly, interested in investing in the market, and secondly if they do want to be an investor they get treated fundamentally differently to how they were six years ago.
“You’ve got to come to the table with far more money before banks will provide the loans.
“That has changed people’s approach to investment because they now have to get more skin in the game and be more prudent about why they’re actually investing – looking at the fundamentals of that investment in a more diligent way.”
Pindan’s director of development & management, Nick Allingame, agrees the banks have gone from one extreme to the other.
“Before, they were handing out money too easily; if everyone is really honest, that’s the reality of what was happening,” Mr Allingame said.
“There has been a correction, they have overreacted, and they are probably too strict. The only thing that will correct that is time.”
Mr Perrin believes the tight finance market is profoundly changing the way land developers approach their business, in a way that could prove very damaging.
“Our industry now operates on the basis that we are not going to spend $110,000 or $120,000 developing a lot for the market unless there is someone who absolutely intends to buy it,” Mr Perrin said.
“We might own the land but we are not going to go to the next stage and create the product unless there is a ready demand.
“If demand does heat up quickly, the ability to put that product into the market will be very limited because it will only be the big developers, the listed developers, with the approvals and the financial capacity who will be able to respond.
“The banks won’t fund it. If you are a mid-tier developer, the banks are looking for pre-sales and a 10 per cent deposit on each one, then they will give you the money, but the market doesn’t work that way.
“People don’t buy blocks of land in our market on a 10 per cent deposit, they buy them on about $1,000, that’s the reality of it.”
Mr Perrin believes the highly concentrated nature of the banking industry creates an opportunity for government to step in.
“The government has a role to play, there are only four banking groups so it shouldn’t be hard to get them around the table,” he said.
The banking industry is dominated by four big groups: ANZ Banking Group; Commonwealth Bank of Australia and its WA subsidiary Bankwest; National Australia Bank; and Westpac, which also owns St George Bank.
m3 Property managing director WA, Gavin Chapman, agrees on the scale of the problem.
“One of the biggest single problems in our property market, whether it’s for the home buyer or the developer, is the finance industry,” Mr Chapman said.
He anticipates the market will eventually correct the current problem.
“We are getting to a point where the banks are running out of markets, and to compete they are going to have to create a point of difference.
“At the moment they have all got the same terms, the same risk model, the same margins.
“At some point, one of the banks will make a break and create a point of difference, on their credit policies or their terms or margins, and that will start the next cycle in competition in banking.
Mr Allingame believes stamp duty adds to the problem.
“Stamp duty is a major reason why people don’t think about shifting,” he said.
“That puts off a lot of people who are thinking about upgrading, downsizing, whatever.
“And banks won’t finance it.”
He believes stamp duty also affects off-the-plan sales of apartments, with WA treating this differently from the rest of the country.
