The major area of the report that affects the commercial property industry is recommendations for restricted lending, which will affect the ability to access capital for those looking to buy or invest. The report made a number of recommendations regarding the mortgage broking industry, including but not limited to:
• Borrowers, not lenders, may have to pay for mortgage broking services
• Lenders may be banned from paying trail commissions to mortgage brokers for new loans
If implemented, these regulations will mean banks will be stricter on who they lend to, and how much they are willing to give. Arguably though, this tightening of belts had already started happening long before the report was actually published.
Since the Australian Prudential Regulatory Authority’s crackdown on lending in 2017, the amount of money that banks are lending in commercial property in Australia has shrunk. But, unlike the residential sector, the commercial market has remained steady.
At the moment, it doesn’t seem as if there will be any immediate major surprises in lending patterns as a fallout of the report. We may even see positive ramifications in the short term, with financial services, banking and legal firms all looking for new offices as they establish or expand compliance teams to work through the recommendations. It’s been reported that the Commonwealth Bank of Australia is looking for 20,000s sq ft to home additional members of the growing wealth management business, for example.
Over the coming years, we are likely to see changes within the commercial property industry as a result of the report. Smaller providers and businesses looking for loans will be impacted, as typically more investors and owner occupiers have borrowed from non-traditional providers, moving away from the big four banks as they became increasingly conservative with lending. Instead, borrowers will be forced back into the hands of the big banks following the recommendations, decreasing competition in the sector and potentially tightening lending in the commercial property finance space even further.
Investors may also be forced to provide more funding themselves for industrial, retail and office space, with Alison Cheung reporting that this has already led to properties not selling at commercial portfolio auctions earlier this month.
It’s unclear how far-reaching the ramifications of the report recommendations will be, given they are not yet set in stone. We will be continuing following the conversation as we wait to see if they are passed as laws.
For those buying or investing in Melbourne, locally or from overseas, our advice is to focus on the fundamentals. Consider long-term yields, don’t just chase the money. Do your research in the local area and in the sector that you are buying into and engage a professional to help. If you’re interested in discovering more about commercial property in Melbourne, call our team today on: 03 9654 2311.