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Lenders’ interest in build-to-rent (BTR) is ramping up, as conditions swing favorably in support of the emerging sector’s growth.
CBRE’s latest Lender Sentiment Survey showed that Australia’s industrial and logistics sector remains the clear top pick for lenders, with more than 80 per cent of respondents naming it as their preferred sector for new lending.
However, the survey — which tapped a mix of 31 local and international banks and non-bank lenders — also revealed that build-to-rent is rapidly gaining popularity among lenders, securing the second spot with a notable 16 per cent increase compared to the previous survey.
CBRE noted increasing interest in BTR is fuelled by lenders recognising population growth projections, an ever-tightening rental market and a more favourable taxation environment strengthening the sector’s growth prospects.
International banks indicated the biggest proportion of interest in BTR projects, with over 60 per cent of respondents in the lender group expressing interest in the asset class.
Non-banks expressed the most interest in growing their book in the residential sector, with two out of three respondents expressing interest in either BTR or residential-to-sell assets.
With the majority of lenders expecting lending costs to increase going forward, data showed a moderate decline in the per centage of respondents expressing a desire to grow their commercial loan books — from 44 per cent in October last year to 32 per cent in May.
“In May, contrary to market expectations, the Reserve Bank of Australia increased the cash rate by another 25 bps to 3.85 per cent.
“There is continued pressure on credit margins to continue to grapple with the cost of capital and an uncertain economic environment,” the report stated.
CBRE’s Pacific head of research, Sameer Chopra, said the overall reduction in lending appetite was most prominent among non-banks, although the results show that they are still interested in growing their BTR, residential-to-sell and industrial portfolios.
“Tighter credit conditions are placing undue downward pressure on future supply, which could boost longer-term rent growth across all sectors,” he stated.
Notably, data showed credit margins could continue to experience upward pressure of about 20 bps, with over 40 per cent of lenders indicating such a move over the next three months.
While loan to value (LVR) ratios have been stable around 40 per cent to 60 per cent, Mr Chopra said, “this might come under pressure as assets are revalued during the coming two quarters, with a slight uptick in hedging requirements since October last year.
“Lenders also indicated higher average credit spreads, LTV and ICR requirements for prime office assets compared to their industrial counterparts,” he added.
But CBRE’s managing director of debt and structured finance, Andrew McCasker, pointed out that domestic banks, offshore banks, and non-bank lenders continue to actively participate across all the asset classes in Australia, albeit with “varying appetites”.
“The majority are willing participants in the industrial and build-to-rent sectors, and we see that continuing to build out over 2023, moving into 2024,” Mr McCasker said.
He explained the underlying fundamentals of Australia’s housing economy is creating significant opportunities in the build-to-rent sector.
“[The] desire by domestic and offshore financiers to fund projects will see this sector continue to grow in the coming years,” he stated.
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