Here at Blue Crane, we believe that we’ll begin to see a reset over the coming 12-18 months of the fuelled run-up of asset values we’ve experienced over the last couple of years. New entry points will be established at yields that reflect risk premiums adjusted to the new-normalised rate environment. The apparent slowdown of new deliveries – new stock – (a result of inflationary pressures and a lack of bank appetite to lend) will likely afford landlords’ pricing power in most sectors.
My feel is that sophisticated property investors will seek enhanced yields in due course, as markets slowly recover and new buildings with ESG ratings, technology and top-quality amenities will without doubt command higher rents.
In terms of residential development, the developers/builders with strong balance sheets will likely pounce on land opportunities and look to start their projects now – given the continued supply issue which is driving both housing values and rent. Valuers around town continue to tell us that apartments are starting to show green shoots, with first home buyer incentives, the large disparity between units/housing, and Chinese buyers gaining interest again post-COVID.
As this all plays out, it will reveal some tensions between the borrower and creditors with land adjustments and over leveraged/speculating ‘first time or inexperienced developers’ either needing to place more equity into the loan renewal/extension or look to sell.
The main near-term opportunity and benefit, which our team is starting to see, is within the non-bank/private lending market where you can find more flexible terms and credit appetite (e.g., lower pre-sales), which can deliver capital when the market desperately needs it. It’s clear, the banks are retreating in the commercial world and only wanting low LVR driven by ICR hurdles which are currently being breached. The flow into market from the interest rate movements are yet to be realised – early 2024.
From there, the next stop will be opportunity for savvy investors with equity (‘dry powder’ is being an expression being used daily by clients) and an understanding of the power of non-bank/private market to make these projects viable.
At Blue Crane, 75% of our transactions are now being placed with non-bank or private credit.