Riding the Changing Credit Environment

We last wrote about the ‘perfect storm’ facing the property sector and builders at risk of rising labour and material costs on extremely tight margins. Since then, builders have been pushing back on developers asking them to shoulder some of the risk, negotiating early to work in a more transparent and collaborative approach.

With the volatility continuing well into this year, we’re seeing developments withdrawn or on hold. Compounding media coverage is making buyers wary of investing in new construction projects, affecting development presales. Rising interest rates have resulted in a lack of FOMO (fear of missing out), which has also taken the heat out of the market.

Rate rises have also affected the commercial property market with borrowing costs doubling over the past six months. There’s a flight-to-quality trend with lenders still keen to back premium developments by longstanding developers and builders.

Lenders are increasingly cautious and strengthening their due diligence processes. Developments with no presales potentially won’t be able to access the same LVR as before.

Equip yourself with knowledge 

For borrowers, knowledge is power. One of the reasons we built comr8 was to act as a guiding star during these times of uncertainty and volatility. comr8 distils Stamford Capital’s 12-plus years of data and experience into a commercial property interest rate search tool. With the ability to update rates with every market change, investors and developers can rely on comr8 to always provide the sharpest indication of what their rate and leverage could be at all times. 

Our Debt Capital Markets Survey Report released this year predicted the growth of non-bank lenders, following similar patterns in overseas markets. Non-bank lenders often have more room to be creative in finding solutions for borrowers, so make sure you’re taking into account all lenders and their offerings.

Lean on advisers you trust

As the credit environment tightens, you’ll see the real power of brokers shine through, especially those who work with all lenders. Experience has told us that in the current climate, when our clients have needed short-term extensions, increasing in funding, or were facing potential defaults on their facilities, having a broker in your corner, advocating for you, will deliver a better outcome.

While it’s natural to be cautious in these uncertain times, there is still liquidity for projects in prime locations, managed by experienced, reputable teams. The need for quality developments will outlive market downtrends, and potentially be a great opportunity for savvy buyers.

The Urban Developer is proud to partner with Stamford Capital Australia to deliver this article to you. In doing so, we can continue to publish our daily news, information, insights and opinion to you, our valued readers.