Banks unwilling to finance new residential projects

The banks have come under attack for their unwillingness to finance the development of new residential projects in Sydney and are potentially holding back the recovery of the new housing market, says BIS Shrapnel managing director Robert Mellor.Speaking at the recent QBE LMI Housing Outlook breakfast, Mellor said developers had been telling BIS Shrapnel that a more favourable planning attitude had been adopted by the O'Farrell state government, ahead of changes to the planning regime next year. "We are hearing from developers that the state government has changed its attitude significantly," said Mellor."The sorts of comments I am hearing is that the government is far more accommodative even without the new regime in place and that's a favourable thing for new construction."But he said the most important thing needed to stimulate a recovery was "the banks freeing up their attitude to lending practices"."My personal view is that banks are being very tough on developers and very tough on individual borrowers."There is this perception [among the banks] that housing could still fall through the floor like it has done in other parts of the world."They need to realise that everything has been thrown at this sector over the last three to four years – it will be nine years since the boom ended coming up this Christmas."You can't talk about prices being massively overvalued when we have seen significant correction in prices, and in real terms they have declined around 12%."Mellor says while it is more still relatively more expensive to build in Sydney, there will be a recovery in construction on Sydney fringes. However, he says the substantial recovery will need to come in medium density and high density construction because the old days of relying on owner occupiers building new houses are over. "You need investors. "We have a favourable regime, but the problem is if banks take a negative attitude on that, then it will be held back. "If that's the case there is the risk of asset price inflation – you need more supply. "The banks have a part to play in that, whether it's funding fringe development or supporting high-rise development. "People need to realise there is no oversupply risk and no collapse about to come."