The South-East Queensland construction industry is as busy as it has ever been, even though the headlines are pessimistic about the future. So, what’s the truth about project funding?
The private sector is full of mixed messages and, depending on your perspective, you could be the busiest you have ever been, or on the edge of a cliff.
The reality is that professional developers pick their point in the cycle and develop, and financiers make their money from lending. APRA aside, if you have the right product at the right time, and with the right team, then there will be funds available.
Mitchell Brandtman compared a basket of its SEQ projects which had successfully obtained construction funding over two periods – the first four months of last financial year (July to October 2015), and the same period in the current financial year (July to October 2016). They were looking to see what has changed and what projects are currently getting funded.
Based on the press, you would expect to find that the number of construction loans for ‘residential’ projects had slumped compared to the same period last year, but in fact the opposite is true. The quantity of projects funded for ‘residential’ purposes are up over 15 per cent, but the real story is in the detail because ‘residential’ picks up a wide variety of project types.
There is a rapid shift away from larger multi-residential projects and toward smaller boutique projects in the five to 10-kilometre ring. In this sample of projects from South East QLD, the larger projects eight levels and above and those in the four-to-eight levels category receiving funding have halved. Meanwhile, the number of townhouse and projects up to three levels have increased by nearly 60 per cent.
Developers are also becoming more adventurous in sourcing finance. They are looking outside of the "big four" and are more aware of the risk appetite of particular institutions for different types of developments.
Here are several trends to watch out for in SEQ in the coming months:
- The choice of contractor may win or lose the preferred funding deal. Financiers are already wary of funding projects with ‘unknown’ contractors or ones that are not performing on current projects. There is an increasing number of contractors who are struggling and the banks are following them extremely closely.
- Contractors that are favoured with the banks are becoming harder to find, so developers are locking in design and construct bontracts at an early stage.
- Owner builders are revelling in the current market. They are agile enough to move quickly, and with one less layer of margin, they are able to make projects stack up.
- There is a strengthening swing toward lending for non-residential projects – in particular subdivisions, aged care, pubs and clubs.