Matthew Royal, Director at DFP, looks back at 2022 and shares his thoughts on the market and future opportunities.
Hasn't it been a rough year for developers!
During my 20+ years in property finance, I’ve never seen a market quite like the one we’ve just experienced. 2022 has really stress tested the feasibility of projects, with cashflows deteriorating all at the same time.
What's been compromised?
To say this year has been bumpy is an understatement. The traditional lending market has been incredibly volatile, and the below blown-out for many developers:
- Costs to complete
- Construction risk
- Market risk
- Project timelines
- Valuation risk
- QS risk
- Interest costs
- Equity requirements
At the same time, GR’s, site values, LVR’s and sales rates have gone down. It’s a project feasibility nightmare! As a result, developers have been at heightened risk to both the security value of their project, and their primary exit strategy – the ability to refinance into construction loans.
Understandably, this has created a negative knock-on effect. Hundreds of projects across the country have been shelved or abandoned, taking thousands of new dwellings out of development pipelines.
The snowball effect
Ironically, this problem is happening at a time when there’s already a shortage of housing and new supply, alongside:
- Record low vacancy rates
- High rental returns
- Record rates of employment; and
- Increasing wages
In tandem, the Federal Government is desperately trying to increase the rate of migration and number of skilled migrants to grow our population. This will obviously turbo charge the demand for new dwellings.
Australia can’t afford to grind development projects to a halt.
Solving the problem
Traditional lending was out of the picture for a lot of developers this year. Tricky market conditions deemed many projects too ‘high-risk’. However, we’re big believers in turning plans into a reality. Hence why clients turn to DFP for fast results and expert advice that they can trust.
To keep projects moving, we helped many clients to restructure their Band Lands, which in turn let them finance opportunistic site acquisitions.
Land Bank Finance, Sydney NSW
DFP secured land bank finance for the developer to purchase a future development site.
Amount: $6.2 million
LVR: 85%
The future and beyond
Looking back, I believe that 2022 has been the year of refinance and the extension for Land Bank loans.
Which implies that there’s hope for the property development industry. It seems the seeds for recovery and growth have been sown.
As a result, we expect our savvy clients will continue to come to DFP to finance opportunistic acquisitions in 2023.