Melbourne developers struggling to work through APRA, foreign buyer changes

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Residential development could soon grind to a halt in Melbourne as developers become increasingly concerned about their ability to finance projects.

According to a survey of 50 development firms by the Victorian branch of the Urban Development Institute of Australia (UDIA), recent political and regulatory policy changes have the potential to seriously impact the supply of housing in Melbourne.

“The compounded impact of recent policy changes has made the business environment very challenging for the development industry,” UDIA Victorian chief executive Danni Addison said.

“Measuring industry sentiment is a difficult feat, but this survey blatantly shows waning confidence in the sector. Government take note – recent policy changes have caused some serious long-lasting issues that will have a very real and negative impact on Victoria,” she said.

According to the survey, 78% of the developers believe at least one of their projects will be delayed, with 46% believing that delay could exceed as six months.

In particular, the surveyed developers identified three key issues that are currently impacting their ability to operate in Melbourne.

Ninety-three per cent of respondents said they have been impacted by the decisions of Australian banks to stop lending to foreign investors, while 86% said they had been dealt a blow by regulations imposed on the banking sector by the Australian Prudential Regulatory Authority (APRA).

Victoria’s decision to hit foreign buyers with additional stamp duty and land tax charges was identified by 81% of respondents as a negative impact on their operations.

“The Institute’s survey findings have measured and confirmed the groundswell of concern about volatility, market conditions and funding constraints in Victoria,” Addison said.

“The development industry is calling out for critical and urgent attention from national and state policy makers and regulators. Action must be taken to improve confidence and facilitate better investment prospects in the interests of a strong and healthy housing market.”

A combination of those grown factors as well as poor global economic conditions have left many developers with a large funding gap, with 60% of the survey’s respondents believing traditional lending sources such as the banks can no longer supply them with the finance needed to complete projects.

“There’s a broad expectation that there is a wealth of capital available in the global markets. However with increasing uncertainty as a result of Brexit, the upcoming US election and even our own domestic election, that’s simply not the case,” Addison said.

“On a positive note, in times where traditional capital markets are increasingly restricted, there is great opportunity for innovative funding models to emerge.  The residential property industry is actively seeking out these opportunities and we hope to see them emerge quickly to fill the funding gap the industry is currently facing,”

The UDIA findings aren’t the first to raise issues around developers being unable to finance projects.

Mark Mendel, chief executive officer of iBuyNew, told Your Investment Property earlier this year that a large number of projects, particularly apartments, are unlikely to get off the ground.

“While there is a lot discussion about banks toughening their lending policies for buyers, they are even tougher on developers,” Mendel said.
“Developers with no track record are getting a blanket ‘no’ from lenders across the board while those with a limited track record are also finding it extremely tough,” he said.

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