Changed bank practices challenge market

30/04/2009 - 00:00

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ACCESS to finance and tighter lending criteria by the banks remain the biggest obstacles for the property industry.

Changed bank practices challenge market

ACCESS to finance and tighter lending criteria by the banks remain the biggest obstacles for the property industry.

Pindan director Nick Allingame told the WA Business News property forum that banks' strict financing requirements were having a major impact on project development.

"You speak to anyone in land subdivision and they'll tell you not to bother speaking to the banks," he said.

"Any chance of life the banks are throttling it out of them because they won't lend to people who want to buy a house, or they won't lend to people trying to develop new land.

"It's got to the stage where it's almost strangulation; there's no flexibility, there's no liquidity."

Real Estate Institute of WA president Rob Druitt said the tight financial market was only going to get tighter.

"From the development side it's very difficult, and that's a concern because [banks] are not lending, or with loan-to-value ratios down so low and the pre-sales requirements so ridiculous, that we're not going to have new build," he said.

Evoke Design Group director Steve Kinchin said the radical falls in loan-to-value ratios had made once-feasible projects unfeasible.

"Now people have been burnt by the share market, they don't have that flexibility to dig into their pockets and come out with an extra $100,000 or $200,000 just to make the project fly," he said.

"So you're sitting there with a project ready to go and no finance. And they will not budge on that, they're holding all the cards."

ABN Group managing director Dale Alcock believes banks have overreacted, criticising them for increasing the deposits required for home loans, and for not passing on interest rate cuts.

"What were seeing is, even at the bottom end, banks requiring an additional 5 per cent deposit," he said.

"That doesn't sound like a lot, but on $400,000, that's an extra $20,000. An average couple don't just go out and find $20,000 in savings overnight, that could take another year to 18 months."

But Cedar Woods chief executive Paul Sadlier said it was important to maintain a functioning banking and financial system.

"In terms of what the banks did in the past, it got a lot of activity going and was probably fuel on the fire we didn't need, and there is a danger of putting people into positions where they can't service the loans," he said.

"I think with the banks being more cautious now, one of the good things is we won't see people over-extended because they won't be getting in. And the people who do get into the market are going to be well-qualified, and they'll ride through a few bumps over the next economic cycle."

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