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Development finance industry experts have said an expected reduction in interest rates will be one factor supporting further normalisation of the still recovering market segment into 2025.
Mark Hayes (pictured below), director at boutique brokerage The Right Angle Group, said the development finance market was now coming to the end of a very difficult and challenging period for the market.
“The reality of the last few years, including this year, is the market has really been more about completion, getting to the end of the line, than it has been about making record profits,” he said.
“And I think it’s been a market that, if you’ve managed to get through the last two or three years and survive and actually get to the end of the line, it’s actually a pretty good outcome.”
Hayes said the market was still operating at a fairly low transactional base. “It feels like we are at about 50%, or about halfway there, towards a market that is in equilibrium,” he said.
However he said that, moving into 2025, particularly in a declining interest rate environment, there was a healthy level of liquidity in the alternative funding market that could finance new projects.
“I think it’s been a good market for lenders in the alternate debt space, where there really hasn’t been too much calamity despite the challenges over the last two or three years,” he said.
“Most loan books are in fairly good shape, so it hasn’t been too bloody, and I think that from a lender’s perspective they have been in a position to actually do fairly well.
“That could be an opportunity for borrowers in a declining interest rate market.”
Clinton Arentz (pictured top), head of lending and property assets at Trilogy Funds, said the lender had seen a “remarkably buoyant” market throughout 2024, with increasing levels of activity all year.
“It’s good to see so many projects now come through the COVID period, come through the supply chain distress period, come through the abrupt changes in interest rates, and that market has sort of normalised beyond all of that, and demand levels are typically higher than they have been.”
Arentz said while states and regions differed, Southeast and broader Queensland in particular was “having a bit of a golden run” and Sydney too was proving “very strong”. While regional NSW and Melbourne are not as strong now, Melbourne was showing “green shoots for next year”, he said.
“We are finishing the year on a very strong note on high business volumes, both in terms of writing new loans and also seeing full term loans complete and replay in the normal course,” he said.
For Trilogy Funds, this is translating into a positive outlook for 2025, even though a Federal Election and possible changes in policies could be a distraction for the property development industry.
“We have the interest rate cycle, and depending on where you sit on your forecasting, we could see a favourable result with the Reserve Bank at least early in the New Year if not later this year,” said Arentz.
“We’re expecting to see slight moderation of the cash rate which is supportive of the property development industry; it might make feasibilities work a bit better, and also might continue to drive ongoing buyer demand.”
Hayes said the industry was still facing some challenges at the end of 2024, particularly with getting people involved at various levels to do what is required to give expedience to projects.
“It is really the people factor that makes the difference,” he said. “If you don’t have the connectivity to the right people at the consulting level, or the funding level, or even a local authority level, projects can ground down and inch along and back up on you and create issues around a project,” he said.
However, 2025 holds promise for small and medium developers when it comes to revenue growth.
“We’re still not getting enough projects through to the starting line to address the housing supply issues,” Hayes said.
“So I think that price growth, because of the lack of supply, and supported by the declining interest rate cycle we are about to enter into, should cause some positivity for revenue growth, and give some confidence to people pushing up on projects to take them forward.”
