It’s probably a good sign that you are nearing the top of the property cycle when private lenders start to take over lending from the major banks, often at high interest rates.
As reported in The Australian, Australia’s self-managed superannuation funds (SMSFs) have become a major source of credit to property investors and developers, according to new research by Credit Suisse, with returns of 15% to 20% on offer:
Credit Suisse’s equity strategists claimed SMSFs had stepped up their exposure to a “potentially vulnerable part of the economy” even as the banks “don’t want to touch” developers.
“Selfies are ploughing money into residential developments, potentially at the peak of the Aussie housing cycle … helping to fill the void left by the major banks,” said Hasan Tevfik, who researches SMSFs, or “selfies”, due to the impact their $622bn in assets can have on markets.
“Our work highlights that the Aussie banks are appropriately pulling back from more risky financing at the right time — before the defaults begin in earnest.”
Meanwhile, The AFR has reported that a $68 billion private lending market has developed, which is seeking returns of up to 30%:
About 300 developers, agents and buyers desperate for funding, as well as private lenders with funds, cash, lines of credit, mezzanine packages and even crowdfunding solutions, met last Thursday in Sydney.
Sydney-based private lender Development Finance Partners has $400 million in applications from foreign buyers looking for funds to settle their property purchases, mainly apartments. The group is looking to raise monies to fund the entire pool.
Applications have come from all the major cities stretching from North Sydney to Bentleigh and Carnegie in Melbourne, the group said.
… funders looking to provide loans to developers and apartment buyers include hedge funds, mezzanine lenders and mortgage trusts. Other funders include wealthy property developers who were interested in investing in the mezzanine space. These developers were finding it difficult to find value in direct acquisitions, instead they were “happy to invest where someone else has taken the risk”.
Melbourne-based private lender Zank & Co. will also lend $50 million a month to apartment buyers. They will raise funds from wealthy overseas investors mainly from Hong Kong.
If the big bank choke hold on supply is broken then it’s all to the good even if it’s clearly peak cycle stuff.
