“We are seeing the savvy developers doing what they can now to get their projects moving,” said Wingate managing director (property) Mark Harrison. “There’s been real buoyancy within the developer market, in terms of getting projects on the drawing board for the last 12 months into the system.”
MaxCap Group founder Brae Sokolski said with the risk-averse banks largely absent from the market, cashed-up institutions were coming to the fore with more flexible policies on pre-sales and leverage. “There was a lot of scepticism in the market during the pandemic, a lot of projects were deferred or abandoned,” he said. “Buyers want to see projects commencing. By allowing them to start with limited presales, you inject immediate confidence.”
Pallas Capital chief investment officer Dan Gallen said the banks requirement for up to 100 per cent of pre-sales reflected the buoyant conditions up to 2017, when developers often could move half their stock on the opening weekend of a sales campaign.
“The banks have not moved with the times,” Mr Gallen said. “Developers are left in purgatory; they can get sales and therefore can’t get the funding.”
According to CoreLogic, apartment prices notched up 1.18 per cent in Melbourne and 0.42 per cent in the month of February. But both markets remain slightly negative on a year-on-year basis, while sub-markets such as Melbourne’s CBD, Southgate and Sydney’s west are still struggling.
Mr Sokolski said MaxCap and its client developers were taking a position on the demand picture in 2022 and 2023, when most projects commenced now will be completed. “If net migration returns, we feel there will be a chronic housing shortage that will work in favour of developers with completed projects.”
Mr Sokolski said funding conditions worked in favour of inner-city boutique developments, led by owner-occupiers.
In a joint venture with developers Neometro and Milieu, MaxCap is backing the $45 million One Wilson Avenue project in Brunswick, consisting of 41 apartments and 900 square metres of retail and strata office space.
Pallas Capital has extended $700 million of apartments over the last three years – mainly by way of first mortgages – targeting upmarket developments in suburbs such as Double Bay in Sydney and Malvern and Brighton in Melbourne.
“The market is certainly there, especially in the owner-occupier space,” Mr Gallen said. “We have had $150 million of loans repaid in the last three months from developers able to sell product.”
Wingate’s Mr Harrison said demand was strongest for smaller boutique developments, of between 30 and 50 apartments. “At the moment there’s a real distinction between investor and owner-occupied product,” he said. “The owner-occupier market is quite strong and we are funding quite a bit through the middle and inner-ring suburbs, driven by ‘downsizers’ and people making lifestyle choices.”
He said Melbourne’s investor market already had been weakened by the Victorian government’s abolition of stamp duty concessions on off-the-plan apartments. But while Melbourne’s CBD was a “very weak sector of the market”, the decline followed a period of very low vacancy rates.
Mr Gallen said the Melbourne market was only just emerging from its “Covid hangover”, over the last two months.
“The auction clearance rates reflect a return of confidence in the market,” he said.