Smaller developers struggling to get funding as banks require higher pre-sales: RBA

Accessing financing for new residential developments continues to be a problem for smaller developers, says assistant RBA governor Christopher Kent.

“While finance is available to households on relatively favourable terms, some developers continue to report difficulties in obtaining finance for new construction, with banks requiring a higher proportion of pre-sales than was typical prior to the global financial crisis,” said Kent in a recent speech to The Australian Institute of Building in Sydney.

Obtaining funding is not so much of a problem for large developers.

“According to the Reserve Bank's industry liaison, large developers that have a good reputation and a strong balance sheet have access to credit, while small developers have tended to experience more difficulty in borrowing funds,” said Kent.

A 2013 insolvency and distressed assets white paper by Colliers International found that development sites overtook industrial property in 2012 in terms of number of distressed assets on the market across Australia, followed by the industrial, commercial, residential and rural and agribusiness sectors.

“Three sectors, in particular, saw a big spike in the number of distressed assets coming to market; being development sites, rural and agribusiness, and mixed-use developments,” says Felice Spark, director of research at Colliers International and author of the report.

Queensland had the highest number of distressed property assets listed for sale over 2012 with 395 properties listed for sale - a 3.5% increase compared with the 382 properties advertised for sale over 2011.

The biggest increase in distressed assets listed for sale state-by-state occurred in Victoria where there was a 56% increase with numbers rising from 61 properties listed for sale in 2011 to 95 properties listed for sale in 2012.

New South Wales saw a decline in the number of distressed properties on the market, falling back slightly from 256 properties to 242 properties.

“The banks have now begun pushing through, forcing properties to be put to market, with a trend towards secondary or regional-based property,” says Spark.