Welcome to this week’s Property News.
As we head into Spring, the real estate markets typically ramp up as real estate investors try to complete transactions prior to the end of the year. Whilst we expect transaction volumes to increase, the total volume and value will be substantially lower than previous years, with a large number of market participants out of the market.
Those with capital to deploy can now be more selective. Deka Immobilien’s acquisition of 452 Flinders Street is a case in point. The building has been recently refurbished, is leased to quality tenants, including the Vic State Government, and the WALE is relatively long. Pricing for this asset was still sharp as Deka will still competing with several parties also keen to acquire the asset including, Keppel Capital and Charter Hall.
Unlike in 2019, assets with inferior qualities could now struggle to build a long queue of buyers, making it harder for vendors to find liquidity in the market at their current book values.
So far, banks have held off acting on impaired loans with APRA providing them relief from the usual strict capital controls. Banks have however completed thorough reviews of their loan books and already identified assets which are likely to be impaired and have been working with borrowers to restructure the loans.
This week APRA wrote to all ADIs to outline new measures to support them in providing temporary assistance to borrowers returning to a sustainable repayment structure. APRA has also indicated that if a borrower is unlikely to be able to resume repayments, loans should be recognised as impaired.
Once loans become “impaired”, banks are required to allocate additional capital to cover potential losses and as such banks will be more likely to deal with those borrowers, including if necessary forcing the sale of assets.
The next 12 months will be worth watching, however a strong non bank finance sector may defer the need for forced sales.
Until next week.
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