Of late, there has been much doomsaying and worry about higher inflation, bond yields and mortgage rates. Nobody is oblivious to the fact that inflation is running hot and certainly some tough times lie ahead for consumers and producers. In the property industry, inflation can be a scary prospect for multiple reasons, including, but not limited to: rising construction costs, reduced disposable income and savings. These mean reduced ability for purchasers and investors to support the market and for tenants to meet rental obligations, but perhaps scariest of all is higher interest rates. Nonetheless, it must be said that some of these fears, while well founded, underestimate the huge depth of capital availability and liquidity in Australia.
For the first time since 2010, the RBA has raised the Australian cash rate from 0.1% to 0.35%. The 25-point-basis increase is likely to be the first of many and will be the catalyst for a rise in interest rates to come. Despite the impending likelihood of further rate increases, our banks are extremely well capitalised. Household savings and balance sheets are superbly strong after two years of saving, stimulus and asset appreciation. The market for private capital is hot; in Wefund’s space it feels that every fortnight a new private lender opens shop seeking to deploy capital through us. On balance, times are good: retirees, mum and dad investors and high net worth individuals are seeking strong, risk adjusted returns through asset backed debt. It is property developers and investors who are the beneficiaries of this capital seeking investment, as they are able to access cheap, flexible debt without the obstacles presented by the banks.
This capital abundance isn’t the by-product of Australian household wealth alone, but also as a result of foreign institutions and asset managers recognising Australia as an attractive jurisdiction for investment. Look no further than Apollo Global Management’s landmark deal with Maxcap (link https://www.afr.com/property/commercial/investor-apollo-lands-on-half-stake-in-non-bank-lender-maxcap-20210906-p58p94) or Brookfield’s purchase of Latrobe Financial https://www.afr.com/companies/financial-services/brookfield-to-buy-la-trobe-financial-in-1-6b-deal-20220310-p5a3mi).
Both of these instances are examples of American asset management giants buying ownership in these stalwarts of Australia’s private lending industry, to gain exposure to Australian real estate. At Wefund, we welcome these capital injections as we understand that they mean cheaper, more plentiful debt for both property developers and purchasers. We understand the importance of market depth – that the greater the supply of money, the cheaper and more available debt becomes leading to a more liquid and stable market.
Wefund works on behalf of borrowers to access this capital and we are well placed and well-resourced to help our clients navigate this changing market. Despite the doomsayers, we maintain perspective and understand that Australia is well placed to withstand higher inflation and higher interest rates. Because at the end of the day, there’s lots of cash looking for a safe home here and accordingly, financing options remain plentiful for our country’s property entrepreneurs.
