In Partnership With MA Financial
Sponsored ContentPartner ContentMon 07 Sep 26
Feasibility Fatigue: Why Developers Can’t Stop Talking About the F-Word
House prices are falling and buyers are more cautious, but developers are continuing to forge ahead with developments and are adapting their strategies to suit.
That was the sentiment at last month’s MA Financial CEO Roundtable, where some of the country’s biggest developers discussed industry challenges and how financiers can help keep it moving forward.
MA Financial head of real estate credit Drew Bowie said that through the group’s mortgage aggregation and home loan lending businesses, it facilitates one in every eight home loans in the country, giving it a clear read on the market.
“That gives us pretty unique data as to what’s going on out there, and what we’re seeing is that it’s pretty slow out there,” Bowie said.
“But we’re also seeing a surge in prime and slightly below prime loans. The market is pushing people out of that top-end prime lending environment into not quite qualifying. So now they’re seeking alternative sources of capital.”
And there’s plenty of capital to help developers keep moving, Bowie said, in whatever way they choose to handle current market conditions.
“Your lender is a massive influence on your outcomes and your success,” he said. “Private credit has made the news a lot recently, but regulators and the industry know that the banks can’t do it alone.”
Developers taking on the downturn
The biggest takeaway is the range of strategies developers are using to navigate falling prices and market uncertainty, and what that means for development in the short to medium term.
Dasco has refocused some of its efforts into its construction business, said director Danny Nicolas.
“On the construction side, it’s less challenging now that price escalation has plateaued,” Nicolas said.
“We find that our books are full on that side, and we are able to do what we are born for, which is delivering product for third-party developers, [which] helps to subsidise some of the shortfalls we have in development.”
On the development side, the focus is on negotiating with financiers and structuring deals to ensure longer-term stability.
“The financiers need the developers as much as the developers need to finance because it doesn’t help anyone if the project falls,” Nicolas said.
Blaq, which operates in Wollongong and now in Western Australia, has taken the bold move of diversifying beyond its sector, according to Blaq chief executive Jared Beneru.
“For us over the next 10 years, we really want to be across all sectors of the real estate market,” Beneru said.
Blaq already has four hotels in the pipeline, a direct result of the uncertainties around Covid.
“We actively made a decision to look at hotels, medical spaces and different market sectors,” Beneru said.
And as investors look toward commercial assets to reallocate their capital, it’s not a bad idea.
Other issues impacting developers
Developers are tackling market uncertainty in their own way, but as UDIA NSW president and Deicorp senior executive Rob Furolo pointed out, help could also come from the government-led push for housing.
“I don’t think I’ve uttered the word feasibility in my entire life more than I have in the last 12 months,” Furolo said.
“It is the topic du jour for the industry and there’s a growing awareness in government of the critical nature of feasibility in terms of trying to hit housing targets and housing supply.
“We’ve been talking [to the government] about the timing of contribution payments to the occupation certificate stage and we’re having conversations about how we can make building less expensive, particularly in areas where feasibility is challenging.”
Even in the luxury end, which has largely been insulated from feasibility pressures, the downturn is being felt, according to Sammut Property Group director Julian Sammut.
“We’re finding that the market’s picking back up, especially in the projects that are two to five months out of completion,” Sammut said.
“The scaffold’s coming down and the owner-occupier can walk through, touch, see, feel the actual product now.
“So we’re finding that our financiers, particularly on that project, are being a bit more flexible with how we stage certain deposits, and that helps us increase the sales rate.”
That, Bowie said, is why it’s crucial to ask the right questions of a knowledgeable financier.
“Everyone should be asking a lender, where does your money come from? Who makes the decisions? What are your lending standards?
“There are so many intricacies around development financing, around understanding the pressures that happen on site, the need to be able to respond so quickly to keep things moving along.
“Developers need a lender who, first and foremost, has a real estate approach to lending.”
