[+] ‘Blood on the Streets’: Developers Brace for Pain

The next six months will be painful for overstretched developers. That was the forecast from three prominent developers speaking at The Urban Developer’s Sydney Long Lunch event. Fortis director Charles Mellick went as far as to say there would be “blood on the streets” as record prices recede and banks and non-bank lenders tighten their purse strings. “I think it’s going to be a really tough year next year,” Mellick said. “Over the past couple of months we’ve had between $1 billion and $1.3 billion in loan applications come through (Pallas Capital’s) doors. But we’ve written about $150 (million) to $200 million. We’ve had three really good months. “But the other $900 million—the majority of those projects aren’t starting because they can’t make any of the non-bank lending criteria.” ▲ Blood on the streets: Fortis director Charles Mellick at The Urban Developer Sydney Long Lunch. Mellick said commercial asset owners were squeezing developers to invest in equity in projects to reduce interest cover ratios to reduce loan to value ratio. “People don’t have the equity anymore to be able to reduce that capital. If you want me to be brutally honest I think there will be blood on the streets for at least the first quarter and second quarter of next year. “I think as people see that interest rates have capped and stabilised there’ll be a bit more confidence and I think at that point you will see proper investment, people going and buying sites again. “I really think it’s going to be a doom and gloom period, and I’m the most positive guy around. But I honestly think it’s going to be a tough time for a lot of people in the next two quarters at least.” ▲ Thirdi co-founder Luke Berry during The Urban Developer Sydney Long Lunch. Thirdi co-founder Luke Berry mirrored this sentiment. Berry said he felt sorry for builders who were “getting squeezed by risk on risk”. “Never has it been more challenging to work out what it’s going to cost,” Berry said. “We got caught, we’ve had to shelve a project, a little one up in Tweed, and we may shelve others and wait for time, and work with the people that we’re buying those properties off. “But the reality is if you don’t have the ability to progress your sites with early works and excavations, then that’s going to cause major issues for our industry. “It is tough, anyone in the industry in this room who thinks they’re going to have an easy first six months next year I would like to talk to you because I would like to understand how.” ▲ Sammut Group chief executive Allen Sammut speaks during The Urban Developer Sydney Long Lunch. After many years and cycles in the industry, Sammut Group chief executive Allen Sammut said there was nothing that hadn’t been thrown at the property sector in 2022. “I’ve been through many cycles, I’ve been in the industry a long time and everything has been thrown at it this year. But right now the lack of liquidity out there and the availability for developers to fund their projects is becoming a real issue for projects off the start,” Sammut said. “You’ve got projects that show good returns and are safe, but you have to put more equity in them to try and meet these LVRs even with non-bank lenders. “Even with a brand and pre-sales it still is very difficult to get the money and get the jobs going. But you’ve got to be an optimist to do what we do.” Berry said there were some silver linings to the dark clouds hanging over the industry. Commencements and completions of apartments in Sydney were down 75 per cent on the highs of 2019, and with 600,000 people expected to emigrate to Australia in the next three years, it is a good supply and demand story for developers who can ride the wave. “I always say when you’ve got record number of immigration, record low supply, things are going to get good, you’ve just got to hang on and plan to be there when the music starts again,” Berry said. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] ‘Blood on the Streets’: Developers Brace for Pain

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