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Turning up the tension on traditional lending

Hugo Clark .

In the latest instalment of our Investor Insights series, Hugo Clark, Associate Director of Distribution at Pallas Capital, explores the continued rise of non-bank lenders in Australia’s property sector.

Historically, Australian markets have tended to follow the lead of their Northern Hemisphere counterparts. This is certainly proving to be the case at the moment, as we see a replication of one of the more significant trends in the European financial system of the past decade: non-bank property transactions beginning to outweigh those executed by traditional banks.

It wasn’t so long ago the property lending landscape in Australia was overwhelmingly dominated by the ‘big four’ banks. However, a confluence of events has triggered a rapid – and, structurally, quite fundamental – shift which continues to reverberate through many of Australia’s largest financial institutions.

Perhaps the most public of these has been the fall-out from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Handed down to Federal Parliament back in February 2019, the Commission’s findings thrust Australia’s traditional banking establishment into an urgent recalibration of underwriting philosophies and risk appetites.

In the short term, this has caused a tightening in the level of funding available within the domestic property lending market. Of course, it has also provided the ideal conditions for reputable non-bank lenders such as Pallas Capital to step in and fill the void – something that, in truth, was already beginning to happen here, inspired by the European property markets.

What does this mean for the future? Certainly, the emergence of non-bank lending in Australia is no aberration.

The ‘purple patch’ non-bank lenders have been experiencing for the last 5-7 years shows no sign of slowing down.

If anything, it’s still accelerating and being driven by two main factors:

  1. Enhanced flexibility – Pragmatic and experienced individuals with extensive knowledge in the lending and investing space are moving towards non-banks for speed of execution and ease of transaction.
  2. Attractive value – Further, and partly because of the above, non-banks are now increasingly able to lend at rates comparable with the banks, making the value proposition a highly attractive one.

These are significant benefits for any investor looking to leverage opportunities in Australia’s burgeoning property market. With strong upside and virtually zero need for compromise, the rise in non-bank lending is set to continue and mature, especially as more Australians explore it as a viable portfolio option.

If you would like to discuss the opportunities of non-bank lending within your own portfolio, please email me at: h.clark@pallascapital.com.au

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