The latest interest rate increase announced by the Reserve Bank is discouraging news for the commercial building and construction sector already struggling with limited access to finance for major projects, according to International property and construction consultants Davis Langdon.

Davis Langdon’s recent survey of developers, financial institutions and brokers indicates that the tight lending environment is not expected to ease for 12 to 18 months – far longer than originally anticipated.

It also revealed that developers were planning to shift away from Australian banks as their source of funding over the next six months. 50% of those surveyed said they will be seeking private equity and 33% would look to private syndicates.

Davis Langdon Managing Director Mark Beattie said recent successive interest rate increases introduced by the Reserve Bank would only serve to exacerbate existing problems in the construction industry.  He also said interest rates have further pressured the required loan to value ratio necessary to secure funding and had the potential to hold back a recovery in the construction industry.

“Given current lending policies and a rising interest rate environment, it is difficult to see how the construction industry can pick up quickly, particularly as the benefits from the federal government’s stimulus package start to fade,” warned Mr Beattie.

“We are already aware that developers are planning to shift away from Australian banks when seeking funding, and this should be of concern to the banks.”

Davis Langdon research showed that 67% of financiers and brokers agree that the level of pre-sales commitment is the greatest barrier to their lending finance for at the moment – irrespective of the type of project.

“It remains to be seen if the latest interest rate increase will push an investor led recovery further out, or whether interest rates still low enough to remain enticing for the short term,” said Mr Beattie.

The ongoing supply shortfall for residential property continues to pressure rents higher, making yields more attractive for would-be investors.

“Interest rates are still low by historical terms and are anticipated to remain low for at least another couple of years.

“As soon as concerns over unemployment begin to ease, the residential sector is expected to revive at an owner occupier level as well, and we’re already seeing signs of high rise residential developers landbanking in preparation for a recovery.”


For further information, contact Meaghan Jones on +61 3 9933 8800 or email mjones2@davislangdon.com.au