Both Village Developers and Retirees Feel the Financial Heat – in the Short Term

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Today, banks account for 92 percent of all home loans; last year it was 80 percent.

This means the village industry is facing bank challenges on two fronts: banks will decide who will develop villages and whether funds are available to young couples to buy family homes from retirees.

At last November’s National RVA Conference, BankWest, St. George and Sunborp were all chasing developers to provide funding. Today, they have each been sold – BankWest to the Commonwealth Bank and St. George to Westpac, or are up for sale – Suncorp. The Big Four banks increasingly dominate; Commonwealth, for instance, owning 30 percent of Aussie Homes Loans.

A leading lender to village developers commented today that even the banks are having trouble securing actual cash to lend. They will now look only to experienced developers that have at least 30 percent equity in a project – for example, $5 million of their own in cash in a $15 million Stage One development. They agreed that across Australia there may be just 20 developers that would be able to achieve this.

Given there are over 100 new villages seeking approvals each year, it falls to the not-for-profits and ASX-listed operators to create the bulk of this new stock, but this second group is suffering from the financial markets fallout. So the community is going to have to rely on the not-for-profits to be the major builders in the short term, and many have big building programs – Anglican Retirement Villages, RSL, Blue Care, Southern Cross, to name but a few.

What effect will all this have on sales? If you have a village that is near completion, you are in a good place. Demand is outstripping supply of family homes because across Australia little new stock is being built. The Rudd Government has, in addition, upped the immigration rate to more than 180,000 new people arriving this year – the highest ever – and they need homes. And interest rates are coming down; Allan Kohler this week predicted on ABC TV that rates will get down to 4.75 % p.a.

Henry Kendall Village on New South Wales’ Central Coast had 700 people to its Open Day two weeks ago, and people in the McCrindle Research study in each state are all serious in their interest in the village option. So people continue to age and the grass will get out of control for many of them this Christmas, forcing their hand. And banks have to lend funds to make money – which will be even easier at 4.75 % p.a. interest rates.