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.
Last year at MP Group, were so incredibly proud to announce our $59,267 donation to support the Indian based operations of the Glenn Family Foundation. The Glenn Family Foundation was founded by philanthropist, businessman, and investor Sir Owen Glenn, and has international operations spanning Australia, Fiji, New Zealand, India, Vietnam, China, the Philippines, Nepal, Myanmar, Sri Lanka, and Bangladesh. Sir Owen has been knighted for his global philanthropic activities and contributions to support communities, and the international sporting arena.
We really love retail property at the moment at MP Funds Management because we see opportunity in the disruption. Australia’s population is growing, our living is getting denser and whilst the advent of online shopping is creating change in the sector, human behaviour causes us to gravitate towards food and entertainment. Whilst some of the retail tenants may be outmoded or a centre underperforming as a result of this evolution, it’s fair to say that well-located and underperforming CBD- located centres, which have a strong demographical catchment area can be turned around with some TLC and well thought out repositioning.
November analysis released by both UBS and Macquarie Bank highlight that potential buyers have become very cautious and expect prices to fall further. Both reports highlight that whilst borrowing capacity has declined, most borrowers don’t borrow at their maximum. The RBA recently showed that relatively few households would have been constrained by the tightening in lending standards over recent years.
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