A new survey has revealed that builders’ reputations are the new “stop go metric” in development and construction finance.
More than 100 active lenders participated in Stamford Capital’s annual Real Estate Debt Capital Markets Survey., from major trading banks and non-bank lenders to super funds, foreign banks, private financiers, and second-tier trading banks.
Stamford Capital’s survey results show an overwhelming 82 per cent of lenders increased their due diligence, catalysed by the combination of builder insolvencies and elevated construction costs.
Yet lending appetite remains robust with 90 per cent of lenders surveyed planning to increase their loan book.
Heightened due diligence is being experienced across the board, within both banks and non-bank lenders and causing significant delays in loan applications – with Stamford Capital’s historical data revealing a 53 per cent increase in finance application times compared to two years ago.
“Despite these challenges, lending appetite remains strong for developments with quality builders with plenty of liquidity in the market, while presale and ICR hurdles are moving in an expansive direction,” said Peter O’Connor, Managing Director of Stamford Capital.
“But Australia’s housing crisis is far from over, with Stamford Capital cautioning that an overwhelming majority of developments in the pipeline are aimed at the luxury end of the market, rather than on delivering affordable new homes.
“There is a distinct lack of affordable new residential stock coming online. Feasibilities just aren’t stacking up for more affordable developments given high land prices and increased construction costs in our major capitals.
“Builder insolvency has been a huge issue for the industry to contend with and while lender appetite remains strong, there is a lot more caution. NSW’s iCiRT has removed the guesswork, minimised risk and delivered greater certainty for both lenders and buyers in NSW and sets an enviable benchmark for other States to follow,” said O’Connor.
A third of lenders in the survey indicated they take iCiRT ratings into account or plan to in 2024. According to the survey, 43 per cent of these lenders have rejected a loan due to a poor iCiRT rating.
“Reports of increasing attention to lending risk and development finance governance is welcome. These reports come from both mainstream banks and non-bank lenders,” said NSW Building Commissioner, David Chandler OAM.
“More importantly, consumers are benefiting on many fronts. The growing uptake of iCirt ratings points to developer and builder trustworthiness. The growing presence of LDI and DLI 10-year warranty insurance points to building trustworthiness,” the Commissioner added.
According to the survey, almost half of respondents perceive the elevated cost of construction to be the biggest barrier to affordable housing delivery.
Thirty per cent of respondents claimed that land use regulation and planning were the most significant barrier, followed by the cost of capital (nine per cent) and access to funding (eight per cent).