Real estate investment manager Qualitas is poised to launch a $180 million construction fund to help finance property developments as the major banks scale back their involvement in the sector.
The fund, secured by a swag of key investors, will be pitched at the residential development market where finance is increasingly difficult to obtain.
The Property Council plan would cut “red tape”. Photo: Robert Shakespeare
Private banks and super funds, both local and offshore, are starting to fill the gaps left by the banks in the past 18 months.
Colliers International’s recent Capital Markets investment report shows foreign banks have increased their lending to the commercial property market by 162 per cent since 2013, or $16.2 billion.
Colliers national research director Anneke Thompson said foreign banks now provided 10 per cent of commercial property lending, up from 5 per cent in 2013.
In that time, Australian banks (known as Australian Deposit-Taking Institutions or ADIs) had reduced their proportion of commercial property lending. They now make up 83 per cent of the market, down from 86 per cent in 2013.
“The turn-around in lending by foreign bank banks is particularly dramatic when you consider their lending to commercial property borrowers actually decreased by almost $2 billion,” Ms Thompson said.
The issue became even more stark last month when the banking regulator, the Australian Prudential Regulation Authority, warned about borrowing standards to commercial property clients.
“Commercial property lending has historically been a source of significant loss for banks, both in Australia and overseas,” she said.
“APRA’s intention was to encourage domestic and foreign banks to tighten their risk outlook for commercial property deals because a heightened risk outlook by banks invariably leads to lower lending volumes or at least slower growth in lending,” she said.
Alternative sources of capital are moving into the space vacated by the banks. Superannuation fund Australian Super is understood to have allocated more than $100 million to individual projects.
And private funds, such as Qualitas, Maxcap, Wingate and Gresham are raising money from institutional and private sources to supply to the commercial market.
“These funds typically lend at the higher end of the risk spectrum, although they’re still selective on borrowers’ covenants. They particularly offer finance for residential developments that major banks shy away from.”