Banks need a lesson in lending: Saraceni

THE head of one of the nation’s largest private property developers believes banks are “gouging their best clients”, suggesting a new property friendly bank would quickly secure the majority of Australia’s property clients.

Describing the industry as an unpredictable rollercoaster ride layered with risks and rewards, Saracen Properties managing director Luke Saraceni said while his bank was currently quite friendly, generally speaking, bank lending to property clients had fallen to new lows.

“There is no doubt that banks are not lending to property in any meaningful way, still, and haven’t been for quite some time,” Mr Saraceni said at a recent WA Business News Success & Leadership breakfast.

“There’s no doubt they’re, I believe, gouging their best clients.”

His comments resonate with the views of fellow prominent property developers Satterley Property Group boss Nigel Satterley and Cedar Woods managing director Paul Sadleir (see Property feature, page 10).

Mr Saraceni wondered if banks really understood the impact they were having on their property clients.

“I can assure you of this, if there was another bank that set up in this country and said ‘we’re going to lend to property people in a proper manner and in a friendly manner and in a free-er manner’ there wouldn’t be a bank in this country that would have a property client left, and I mean just about every single client,” Mr Saraceni told the audience.

Despite indications the financial situation was improving, thanks largely to the resilience of the Western Australian economy, Mr Saraceni explained that an increasing level of interest from overseas lending institutions and foreign private equity meant banks had to lift their game.

“By the end of this year banks are going to have to realise that if they don’t start lending into property, which is one of their main areas where they used to make money, they might start to miss the boat a bit,” he said.

Mr Saraceni also said that valuers had contributed to the current lending difficulties, suggesting they were very conservative in their valuations in light of possible legal action for overestimating property values.

“I think they’re improving as the economy is improving (but) there’s no doubt that’s had an impact,” he said.

Despite current financial obstacles and the industry’s perennial challenges, Mr Saraceni said it was all part of the job.

“Property development is a roller coaster ride; if you’re not prepared for the adrenalin rush that property development gives you, you shouldn’t be there,’ Mr Saraceni said.

“There’s always something you can’t predict; who would’ve predicted the banks would stop lending throughout the world?

“It has its ups, and it’s great when it’s up, but when it’s down you’ve got to work, and work twice as hard.

“You can’t go out on your boat as much and you can’t play golf as much, you’ve just got to work harder, it’s no big deal.”

What has been a big deal for Mr Saraceni was the upheaval at his $500 million Raine Square development in the heart of Perth, culminating last week with the builder, Salta Constructions, lodging a writ in the Western Australian Supreme Court seeking damages for loss of profit against Westgem Investments, a Saracen Properties company.

Salta said it terminated the building contract last month due to concerns surrounding payments and the impact this could have had on subcontractors.

This followed Salta’s abandoning of the site in early February, which Mr Saraceni puts down to the builder’s mismanagement of the project, electing not to enact mediation clauses contained in the contract.

“That’s the first time I’ve ever seen that occur,” he said.

“They [Salta] mainly, I believe, lost money getting out of the ground. Putting a number of floors underneath, it’s the highest risk area and where you lose money.”

He said he’d learned from the Raine Square saga, suggesting he would happily pay more in future to ensure a higher level of local content was utilised in construction.

And Mr Saraceni highlighted other valuable lessons learned over the years that may help with current projects, including 263 hectares of industrial land south of Bullsbrook, shopping centre developments across Victoria, and Vasse Newtown, a planned residential community between Busselton and Dunsborough.

“Don’t try and capture every single dollar, don’t try and eliminate every single risk, make a decision – that’s one of the main things I’ve learned,” he said.

“The other one is, don’t assume that when times get tough everyone is going to be rational, fair and reasonable. And make sure you prepare appropriate documentation for that scenario.”

Before property development beckoned, Mr Saraceni cut his construction teeth working alongside his Italian concreter father, Mick, supervising a team of 20 “crazy Calibrian” grano workers.

He transferred his strong work ethic across to university, where he qualified as a town planner, which led to his appointment as the City of Swan’s town planner aged just 23.

The first town planning committee meeting he attended – at which his professional, albeit admittedly naïve opinion was shouted down by the local power brokers – delivered another life lesson he still stands by.

“Don’t be afraid to say what you think,” Mr Saraceni said.