- The survey featured responses from over 100 active lenders
- Majority expecting amrket to peak this year
- Non-bank lenders expected to fill the void created by more risk averse banks
The first comprehensive dataset analysing the impacts of the post-pandemic economic climate on the Australian commercial finance sector has been released by Stamford Capital.
Its annual Real Estate Debt Capital Market Survey in March 2022 featured responses from over 100 active lenders, ranging from major bank and non-bank lenders to super funds and private financiers. Half of the participants had loan books above $500 million.
The survey is the fifth in the series to date, and is used to identify market trends.
“It is compelling to measure how the pandemic impacted our finance markets, as we emerge into the post-pandemic climate and navigate the ongoing challenges it presented to a range of industry sectors – with the recent interest rate rises adding yet another hurdle for borrowers”, said Michael Hynes, Joint Managing Director at Stamford Capital.
“2022 is going to be a wild ride with rates forecast to rise further, non-banks continuing to grow market share and a number of property sectors, including residential and industrial, earmarked to be nearing their peak in the cycle.”
Key findings
The survey found that residential presales are returning to pre-COVID criteria, thanks to most property sectors being in recovery mode while the industrial sector continues to boom.
The loan books are expected to continue their growth but with rising margins, as non-banks enter mainstream lending. Also, product innovation is expected amid further interest rate rises.
“It’s down to the fundamentals of demand and supply. On one side of the ledger, the market is buoyant – developers are wanting more capital. On the other side, non- banks can offer higher returns to their investors than the bank. So, there’s capital flow.”
Michael Hynes, Stamford Capital
Although there is a growing list of construction insolvencies, the outlook for lenders is optimistic, with 90% expecting their loan books to increase in 2022, compared to 82% in 2021.
55% of major banks to expect their investment loans this year, although there is a significant decline in construction lending. Non-banks, however, are expected to boost their investment in construction lending this year.
Presales criteria the comeback kid
Although there was a swing to zero or minimal presales in 2021, 22% of lenders are now willing to finance zero presale projects.
Given interest rate rises and housing prices cooling, the survey found ti makes sense for residential developers to lock away some presale revenue.
Over half of lenders (57%) now expect to see 60% in presales, up from 45% last year. Over 88% of lenders expect to maintain this level throughout 2022.
“There’s no suggestion the banks are loosening credit requirements in any way – and if anything, APRA has kept the screws turned pretty tight,” Mr Hynes added, with 90% of lenders saying teir leverage requirement will most likely not change.
Industrial and residential markets nearing peak, non-banks the new kids in town
Given the continued demand for warehousing and logistics market, fuelled by online growth in particular, the industrial sector remains the strongest performing.
However, 65% of respondents believe industrial property Is nearing its peak.
“Everyone loves certainty of income profile, and industrial currently seems to have it better than most. It’s very much an institutionally led market, and the certainty of planning demand, big sheds, and big tenants make it attractive,” said Mr Hynes.
Lastly, the survey reaffirms non-banks are entering mainstream lending. More than two-thirds of respondents said they expect non-banks to increase investment lending. 62% are expecting increased construction lending as non-banks tend to be less risk-averse.
However, just over half of respondents (54%) now expect APRA to increase regulatory oversight of the sector.
Additionally, over half of respondents (545%) expect further 0.5% to 1% bumps in interest rates.
“With borrowing costs moving up, interest cover will decrease. And that means ICR could become the new handbrake on lending – not LVR. It also opens opportunity for greater innovation and new lending products,” according to Mr Hynes.
