Billion dollar fund to get new blocks started

The NSW state government is going to make it easier for developers to get the initial finance required to build apartment blocks by guaranteeing up to $50 million in sales from a $1 billion fund when the blocks are completed.

According to this story in the Sydney Morning Herald, Treasurer Daniel Mookhey has revealed that the government would create a fall-back fund to guarantee financing for approved housing developments to speed up the delivery of an estimated 15,000 new homes over five years.

He said the government acting as guarantor on thousands of residential developments would target one of the biggest roadblocks for developers: securing enough pre-sales to get finance from lenders.

The government hopes the plan will accelerate the construction of residential projects enabled under its transport-oriented development scheme and low- to mid-rise housing reforms.

Developers can usually only get lending approval for a project once they hit about 80 per cent of pre-sales. However, according to the SMH report, the “pre-sales financing guarantee” will enable mid-tier developers with approval for low- to medium-density residential projects and initial pre-sales to apply for $5 million to $50 million in financing.

Property and Development NSW will assess those developers and projects for their “credibility, capability and capacity” before agreeing to act as guarantor on up to 50 per cent of dwellings in each project. If approved, developers must start building within six months.

This will reduce the number of pre-sales a developer needs before a bank is prepared to make a loan available for them to start construction.

If the developers do not pre-sell the homes, they can call on the guarantee and the government will purchase the completed dwellings at a discounted rate before selling them on the private market to buy or rent, or using them for social or affordable housing. If the developer secures the pre-sales, the guarantee is extinguished and the funds will go back into the $1 billion fund for another project.

Treasurer Daniel Mookhey said the plan targeted “the projects we need to get started to tackle the housing affordability crisis” which were “the most challenging projects to deliver under current market conditions.”

NSW Opposition Leader Mark Speakman said it was “a very, very modest proposal. Even on the government’s own figures, we’re talking about pre-sales of 5000 new homes. That’s 1000 a year over five years. It’s a drop in the ocean compared with the 377,000 [dwellings] target NSW has.”

The Herald story carries a range of responses from industry players, most of them positive.