Developers Push For Credit To Be Freed Up

Developers Push For Credit To Be Freed Up

The Age
17 January 2009
Vanessa O'Shaughnessy, Investment Reporter

VICTORIAN developers are pleading with state and federal governments to help them get hold of funding.

They say a shortage of credit and stringent lending conditions threaten to contribute to Australia's economic downturn by halting projects and reducing jobs in the construction industry.

Victorian Premier John Brumby has scheduled a meeting for January 30 to work out how the building industry can be helped to stimulate economic activity.

Deal Corporation managing director David Kobritz said that over the past year the banks had moved from extremely liberal lending policies to conservative ones.

In many cases, lenders were attempting to have the entire debt for a project covered by pre-sales before they would approve it.

"A lot of projects are going to be put on hold simply because they are going to be too difficult to fund," Mr Kobritz said.

For more than a year now, lenders have been hamstrung by the high cost and scarcity of wholesale funds caused by the crisis in global markets.

Most have been examining proposals more thoroughly than before to reduce risk, and thus bad debts.

A spokeswoman for National Australia Bank's business bank said it was still lending but was analysing any commercial property proposal carefully as it considered the sector riskier than some others.

Deal Corporation has five projects scheduled for this year. It says they have been in the pipeline from one and four years and each would employ between 200 and 300 people.

But there is no guarantee that Deal will start any of them, either due to lack of start-up funding or a shortage of credit for businesses that want to buy a section of the development on completion.

"The biggest risk in development is not planning, it's not construction, it's settlement risk," Mr Kobritz said.

"We need confidence that we can proceed knowing that the funding is not only there for us, but for the end purchasers - on reasonable terms and conditions."

The British Government showed the way this week, outlining a plan to guarantee up to 20 billion ($A44.2 billion) in loans to medium-sized companies. Its aim is to get credit flowing to stimulate the local economy.

In Australia, funding constraints continue to put pressure on businesses large and small, including property developers.

Late last year, the Building Industry Consultative Council, an advisory group set up by the Victorian Government in 2001, wrote a letter on the issue to Deputy Premier Rob Hulls.

The council welcomed new infrastructure projects announced by the Premier but pointed out that, whereas they needed 12 to 24 months' preparation, there were projects in the pipeline in the commercial building sector that could be started almost immediately, eliminating the chance that jobs would be lost in the meantime.

At about the same time, the executive director of the Urban Development Institute of Australia, Tony De Domenico, wrote a similar letter to Prime Minister Kevin Rudd.

"The credit crisis is now slowing development of apartments, residential subdivisions and even the smaller unit developments that dot the inner and middle suburbs," he wrote.

"The funding shortage has already led to less construction work, job losses, falling buyer confidence and (it) ultimately drives down property values across the board."

Mr De Domenico told BusinessDay that, notwithstanding the more difficult conditions, the Victorian building industry was still contributing to economic activity, in part because of an influx of migrants and liberal land supply policies.

"We employ more people than the car industry and, what does the Government do for the car industry - it gives them billions in subsidies," he said, while stressing that the building industry was not looking for a handout.

But a spokeswoman for Mr Rudd said the Government had already taken decisive action to assist the building industry and developers by "getting credit flowing again in the wake of the global financial crisis".

It had provided $8 billion to improve competition in the mortgage sector, guaranteed bank deposits and helped banks to raise capital in global markets through the wholesale funding guarantee, she said.

In Victoria, the value of engineering construction work actually rose in the September quarter, gaining 3.2 per cent, according to the latest data from the Bureau of Statistics.

But Victorian Trades Hall Council secretary Brian Boyd said redemptions on the building industry's redundancy fund had risen in December.

Employers pay into the fund on behalf of workers, providing some income if they were retrenched or laid off. Anecdotally, it appears that the number of workers who have been retrenched might have gone up late last year.

"Last month, people were chipping into the redundancy money more than they had been," Mr Boyd said.

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