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Interest rate cut welcome – now banks must resume lending for development

02 December 2008

Todays one per cent interest rate cut is welcome, but it wont have the necessary impact unless banks resume their lending for development projects, according to the Urban Taskforce.

Mr Gadiel said the Reserve Bank cash rate of 4.25 per cent was now 2.75 per cent below its early October level.

 

Lower interest rates will stimulate home buyer demand, but getting a supply of new homes is also essential, Mr Gadiel said.

 

Home development is about to stall because lenders are telling property developers they will not renew loans for projects with uncertain planning approvals.

 

When they do lend, the margin taken by the banks has more than doubled two per cent above the cash rate, when it used to be less than one per cent.

 

Previously development projects were financed with a loan amount of up to 70 per cent of a propertys value – now this has been cut to around 55 per cent.

 

The banks tougher stance has magnified the impact of recent falls in property values.

 

The most recent Australian Bureau of Statistics figures suggest the supply of new homes is drying up with a 7 per cent fall in new home approvals in September.

 

Mr Gadiel said that NSW has been hit particularly hard – with a fall in home approvals of 26 per cent in a single month. He said that NSW approvals for apartments and townhouses which are very dependent on project finance from banks – plummeted by 48 per cent.

 

NSW may lose a large number of projects currently in the pipeline if the banks continue their current program of credit rationing, Mr Gadiel said.

 

NSW has little hope of meeting employment, housing and growth targets without a strong series of projects coming through the development pipeline.

 

We face the prospect of losing investment and jobs crucial to the States economy in the coming years.

 

If these projects fall over it will leave a yawning chasm in our States job and housing numbers.

 

Sydney could lose 87,000 jobs if a massive drop in building approvals recorded in the September quarter is sustained over a full year.

 

The Urban Taskforce is a property development industry group, representing Australias most prominent property developers and equity financiers.

 

 

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