Treasurer Jim Chalmers has taken steps to address a significant hurdle facing apartment developers at a time when Australia is in urgent need of new housing. In a move aimed at easing construction financing, Chalmers has formally requested that the Australian Prudential Regulation Authority (APRA) revise its lending guidance for developers, particularly those involved in building apartment blocks.
In 2017, APRA introduced a policy stating that banks should only provide financing for the construction of new apartment complexes if a project had been fully pre-sold. This condition has been widely interpreted as requiring 100% of units to be sold before construction can proceed, creating a barrier, especially for smaller developers.
According to Chalmers, this requirement has particularly hindered smaller developers who often lack the capital to begin construction without bank assistance. “Smaller developers frequently do not have the upfront capital needed to kick-start a project and rely on bank support to get things moving,” he explained.
In response to Chalmers’ request, APRA has confirmed that it will advise banks that while pre-sales should remain a key factor in evaluating financial risk, the 100% pre-sale requirement is not mandatory. The Australian Securities and Investments Commission (ASIC) has also pledged to swiftly revise its lending regulations to align with the new guidance.
A Positive Shift for the Housing Industry
The proposed changes have been met with strong support from housing sector representatives. Denita Wawn, CEO of Master Builders, called the announcement a “welcome step” for the construction industry, highlighting that financing difficulties have long been a significant barrier for high-density developments.
“We have heard repeatedly from our members about the challenges in securing financing from banks unless a large portion of the dwellings are pre-sold. This is no longer a sustainable model, particularly given the current economic climate,” Wawn said.
Mike Zorbas, CEO of the Property Council, echoed the sentiment, stressing the importance of stimulating apartment development. “Apartment construction in Australia is currently at half the level it was in 2017/2018. The need to boost this sector has never been more urgent,” Zorbas remarked.
He added that just as access to mortgages should not be restricted to the wealthiest Australians, overly stringent lending regulations should not prevent the development of much-needed housing.
Relief for Smaller Developers
Smaller developers stand to benefit significantly from the revised guidance, as they are more likely to rely on bank financing to initiate projects. Angus Moore, senior economist at REA Group, noted that clarifying the regulations would provide much-needed relief to the sector, particularly in light of the ongoing high-interest rate environment.
“Building activity is highly sensitive to interest rates, and the recent rapid increases have had a profound impact. Clarity in lending regulations will help developers navigate these challenges,” Moore said.
Impact on First-Time Homebuyers
In addition to the changes for developers, Chalmers also revealed that APRA has been asked to review the treatment of education debts under the government’s Higher Education Loan Program (HELP) in relation to home loan applications. Currently, many young Australians are finding it difficult to secure mortgages due to how banks interpret HELP debt in serviceability assessments.
Chalmers acknowledged that the presence of HELP debt has become a barrier for young people trying to enter the housing market, with banks often citing these loans as a significant factor in their reluctance to approve home loans. APRA has confirmed that it will begin consultations on how HELP debt should be treated in future lending assessments.
Wawn expressed her belief that this change would particularly benefit first-time homebuyers who have been unfairly hindered by the current system. “HELP repayments are often seen as a heavier burden than they are, and this has restricted many potential homeowners from entering the market,” she said.
These developments signal a shift toward more accessible lending practices that could help stimulate both apartment development and homeownership for younger Australians.
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