Developers Review Options as Commercial Construction Sector Rebounds
The NAB has just released its Quarterly Australian Commercial Property Survey. The survey suggests that 76% of commercial property developers indicate they will commence new works in the next 12 months
According to Nine MSN’s Chris Shaw: “Those in the market expect debt sourcing barriers will ease over the next three months, (I think this call is somewhat optimistic and will be contingent on some significant downward movement in interest rates) while 50% of survey respondents plan to source more debt in the next six months.”
“The survey also showed the percentage of respondents ruling out any debt additions over the next year is falling quickly, having declined to 22% from 46%. At the same time, procuring equity is seen as becoming more difficult.” Chris reported.
This makes the middle ground of accounts receivables financing a viable alternative. We, (AR Cash Flow) can to some degree, substantiate the predictions anecdotally having enjoyed a strong upsurge in activity from both existing clients (in the construction industry) as well as a 60% increase in new enquiries (from the same sector) over the last 2 months. Admittedly, we launched our progress payment funding product over 12 months ago, so the increased uptake is probably a combination of familiarity and necessity. That said, the uptake is gaining momentum
The bank’s survey also shows the top five concerns for market participants. These are: the availability of stock, the ability to source debt, the level of interest rates, the level of business costs and the availability of equity for new projects.
It’s important to remember that this survey is at best indicative. The GFC has left an indelible mark on the psyches of commercial developers. Taking on more short term debt or margin reduction will in many cases be preferable to long term debt exposure.
Furthermore, many civil/construction projects that were put on hold during the GFC are now being scheduled for completion. Penalty clauses aside, the idea of being left hung out to dry will, now more than ever, be an anathema to many players.
In Europe, Great Britain and the US, progress payment funding has been an alternative to traditional construction financing products for over a decade. It took time to gain traction, but now it’s an understood option.
Now it’s Australia’s turn. Take the time to make some enquiries. Progress payment funding can be used as a whole-of -project option or partially to secure, say raw materials. Partially? This is where you expose only a small portion of your receivables for a temporary period. Used judiciously, in can be segued neatly into debt arrangements with banks to take advantage of raw materials procurement or simply to cover standard fixed and variable costs.