Oct 09 2018Add to Favorites
With the combined influences of a cooling residential property market and heightened bank scrutiny on all aspects of real estate lending, traditional debt sources are, in many cases, closed to developers and commercial real estate investors, particularly where circumstances require a specific funding solution.
·Sales rates for new developments have fallen significantly and are now unlikely to achieve pre-sales required to cover development cost;
·Programmes should be incorporating additional time to ensure sufficient facility headroom to accommodate delays in achieving sales;
·Similarly, due consideration should be applied to downside sensitivities on realisations to ensure appropriate coverage;
·Valuations for both sites and finished product are retreating which has the potential to erode equity and push up funding ratios;
·The risk of interest rate rises is increasing as the cost of wholesale funding for the banks starts to climb in line with international interest rates.
The impact of these conditions on the liquidity and value of real estate means that investors are now effectively sharing a higher proportion of the development risk than they have had to in the past and this has a flow-on effect to the pricing for the funds they are prepared to provide.
Understanding these conditions is imperative to measuring and pricing the risk of an investment to ensure returns are commensurate with the risk taken.
MP Funds Management is confident in the macro themes of Australian real estate, which we believe have sound fundamentals and pockets of value based on;
Required population growth, driven by our diminishing tax-payer base and top-heavy aging population. NSW forecasts anticipate growth from 7.7m to 11m by 2036.
Supply-demand fundamentals; a) 10 million residential dwellings to accommodate 25 million people, growing at c. half-a-million a year and; b) A planning system that is prohibitive of housing new supply.
A Federal budget and payment of an $18.2b deficit that is entirely reliant on the collection of personal taxes. With forecasts of the $18.2b deficit reaching $11b surplus by 2020 and no wages growth, this tax collection is predicated on inflows of working, tax-paying immigrants.
Infrastructure spend of $85billion over the next four years for NSW and $45billion for QLD to accommodate growth.
MP Funds Management has been working with a number of institutional and private investors to provide structured funding solutions for transactions where traditional banking channels may not be available. MP Funds Management targets specific pockets along the Eastern Seaboard where we believe the underlying property fundamentals remain sound and have strong growth potential.
The current investment landscape in Australia is driven by a range of factors, not least the 2019 federal election, and the view is that the result of the Wentworth by-election, a seat that has historically been monopolised by the Liberal Party, will be the foreshadowing of the federal outcome. The Australian equities market is experiencing volatility, with a 200 point drop last week in the S&P ASX index, the largest drop this year and potentially the result of sentiment surrounding geopolitical headwinds with the latest developments relating to the trade war between the USA and China. Global bond rates remain low, and despite incremental increases, interest rates are too low to be attractive from an investment perspective.
In an ongoing low-interest rate environment on savings and with banks withdrawing from property and construction financing, investment groups like Centennial Property Group are seeing value in providing first mortgage funding for property development, recently settling a $48m loan for a mixed-use retail/residential development in Sans Souci, NSW
Investors via Balmain Private's digital platform have rushed to a recently offered Trinity Point Drive investment, with the investment oversubscribing within 4 hours of being listed on the platform. The investment forecasts a 9.15% annual return for a term of 18 months with a Loan to Value ratio (LVR) of 43%, with distributions paid monthly.
Creating an account with MP Report allows you to save articles and update your preferences to filter the content based on your interests and what content you would like to receive from us via our email alerts and newsletter.SIGN UP HERE >