There has been a “consolidation in the private lending market” as the residential property market tightens, a non-bank lender has suggested.
Non-bank finance group Chifley Securities made the claims after the most recent housing finance statistics from the Australian Bureau of Statistics (ABS) showed that finance for total dwellings had dropped by 1.6 per cent in June 2018.
According to the lender, the number of private lenders rose by 40 per cent (to 165) during the financial year 2017–18, but Chifley Securities principal Dominic Lambrinos warned that as the residential market is pulling back, there is “increasing evidence of mispricing of loans to developers by new, smaller players”.
“As a result, quality non-bank operators are becoming more sophisticated, which is starting consolidation in the lending marketplace,” Mr Lambrinos said.
Mr Lambrinos went on to say that he was expecting developers in several of the major markets, particularly Brisbane and Perth, to face further pressure as demand drops away and pre-sales fail to convert to settlement.
“As a result of the pullback, it is becoming increasingly evident there were many loans mispriced, and as a result, the lending market is becoming more challenging, especially with the tighter lending controls being put in place by APRA and expectations arising from the [financial services] royal commission,” the principal said.
“We are also seeing an explosion in the number of private investors entering the market, especially large and small foreign funds, which are demanding greater professionalism of non-banks and brokers facilitating transactions.”
Chifley Securities therefore expects that increasing volumes of lending will be provided by the larger players, which it said have the resources to comply with stricter standards set by more sophisticated private lenders and tighter regulatory controls on the sector.
Highlighting that the lender has recently adopted an aggregation division, Mr Lambrinos said: “We expect to see strong demand for more sophisticated and specialist non-bank finance solutions as the lending criteria of the major lenders continue to tighten.
“There are large groups across the property sector now off-limits to major lenders, despite the fact that many of the projects are viable and backed by strong equity and balance sheets.”
[Related: More lenders succumb to funding pressures]