Construction has begun at Union Place with demolition works commencing in the last week of January.
Fresh activity on site has enticed renewed interest in the project with another 3 apartments sold since the first weekend post construction commencement, taking total sales to 64 apartments. Despite 72% of the project now sold, it is clear that sales aren’t all that is needed to secure construction funding. The resilient and highly active residential market in Sydney has imposed additional hurdles for developers to overcome in order to secure senior debt funding.
Due to offering over 100% debt coverage, and a strong balance sheet of a reputable builder Duffy Kennedy, White and Partners was able to secure funding from Bank of Queensland. White and Partners found that the majority of lenders, although supportive of the project, could not provide construction funding due to already reaching their lending caps under BASEL 3. These measures although prudent to certain parts of the world may not necessarily be favourable to the Australian market given the relatively small number of banks. Lenders are also adopting a more conservative approach to lending due to the continued increasing activity in the residential property market.
Further to the hurdle of cautious ‘capped out’ lenders, is an increasing shortage of builders with capacity. White and Partners carried out 2 tenders in order to find a suitable builder for the project that fulfilled criteria not only required by White and Partners but also the senior debt provider. The selected builder, Duffy Kennedy, is an experienced builder with over 20 years in the industry and is currently in final stages of completing two projects in Sydney.
The buoyant market has resulted in builders being stretched, and finding it increasingly difficult to take on new projects. This shortage is causing heightened construction costs which White and Partners estimates are at a 20%-30% premium compared to 2-3 years ago.
These two aspects have contributed to the already complex process of property development and will continue to evolve as demand for property continues to grow.
