A perfect storm for property developers?

A perfect storm for property developers?
A perfect storm for property developers?

Property developers are currently facing a perfect storm, with tightening funding markets and increasing holding costs, all with the disappearing traditional avenue of the major banks, according to Pitcher Partners Melbourne client director Jasson Fallscheer.

Fallscheer says developers are increasingly chasing finance partners willing to back projects as the major banks retreat from smaller developments, highlighting new opportunity for private funders to gain exposure in the sector.

"Developers are looking at ways to get their projects started in a tight funding environment and that has created the opportunity for private funders to step into that void and help get projects started sooner," Fallscheer said.

Damian Pearce, Pitcher Partners client director of business recover and insolvency services, said as well as the difficulties in obtaining funding to commence projects, market conditions meant developers faced heightened risks as projects progressed to completion. 

“Developers are factoring in a higher cost of funds which makes the execution of the project even more vital,” Pearce said.

“One of the things we are starting to see, if you have an increased holding cost and an increased funding cost, developers are going to start thinking about where they can attain margins and that will ultimately be squeezing contractors to obtain profit margin. 

“If final sales prices are coming down and funding costs for construction are increasing, the margins in the middle are getting squeezed and the developer looks to shift those costs down the line.”

Tags: 
Developers Development Funding

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