Willingness to take on higher loan to value ratios, speed of decision making and growing risk aversion among major banks to fund mid-market property development is fuelling the  rapid rise of private lending, according to research from Centuria Bass Credit (CBC). 

The inaugural Centuria Bass Australian Property Development and Finance Index 2024, which surveyed 67 developers, investors, fund managers and brokers, revealed that 70 per cent of respondents had increased  their level of private credit over the past five years. 

According to the survey, respondents said 72 per cent of their loans are now sourced through private credit. 

A further 95 per cent of respondents agreed that the higher cost of non-bank lending is offset by the  advantages, the most important of which is faster decision making, followed by generally higher loan to value  ratios and flexible terms. 

Nick Goh, Centuria Bass Joint CEO, said property development debt market share has been shifting over the  past decade but now the pace has picked up. 

"There'll always be a place for banks at the lower risk end of the market where you've got well-capitalised  developers who are operating with fairly conservative gearing,” Mr Goh said. 

“The banks will always support those borrowers, but that sector represents only a component of the industry,  which is presently less active. Other borrowers are taking advantage of greater flexibility and higher risk  appetite of private lenders to enable construction projects to start. This is a continuation of a trend in the development finance market that started in Australia, at least, post the GFC.” 

When asked “has borrowing from banks become harder?”, 78 per cent of respondents said it is now more  difficult to secure bank funding for projects. This compares with 19 per cent who said there had been no  change. 

David Stone, Head of Capital at Bathla Group, which has a significant development pipeline in the growth corridors of Sydney, says all its funding is provided by non-bank lenders. 

“Our business is predicated on speed. The speed we can get an approval, the speed we can start construction, the speed we can complete projects and sell stock. 

“For us, private credit is just so much faster and so much more flexible. Private Credit also allows you to lever  a little higher. For those reasons, it makes sense.” 

The time it can take to get loan approval from banks is also a deterrent. 

“The very long gestation period for an application means it can get to a point where credit parameters can change and you might find out that you’ve got to provide additional equity into a project or be subject to  onerous conditions,” says Stone.  

“Whereas with private credit you’re generally getting applications and approvals in a pretty condensed time frame so less likelihood for the deal metrics to change.” 

Bathla Group is based in Girraween, western Sydney, and develops across the residential spectrum - townhouses, apartments and subdivisions. 

It has a significant development pipeline with multiple projects on the go at any time, primarily in Sydney’s northwest and southwest corridors, but the business is also active in Victoria, Queensland and South  Australia. 

Centuria Bass was founded in 2016 and has since grown to c.$2 billion in funds under management (FUM).  Since its inception, Centuria Bass has provided compelling returns for its wholesale investors on secured private credit loans. 

More Centuria Bass reading:

UBS commits financing c.$150m to Centuria Bass warehouse facility | Commo.

Centuria increases stake in strongly performing real estate finance business  | Commo.