13 October 2014

Low rise developments changing the face of Australia’s suburbs

Australia’s property market continues its strong performance, with prices in 2013 and 2014, confirming the longer term average trend of steady, positive growth. This is particularly so in the larger capitals with Sydney enjoying a catch up phase but also most capitals benefitting to lesser degrees.

As part of this, the shifts in Australia’s demographic continue to push through, redesigning the face of our cities and suburbs. One of the well known trends in recent years has been the strong demand for low-rise, higher density living in small to medium size developments; suburban redevelopments in popular metropolitan locations converting single or multiple traditional housing blocks into small or medium numbers of generally higher quality apartments or townhouses.

As a brief side issue, through this process, the above noted price rises in metropolitan areas are being achieved whilst also increasing the numbers of residences in these areas. This more accurately shows the surging value of total property stock in metropolitan Australia as the nation transforms into a modern society.

Low-rise, small to medium size residential developments

These developments typically range from four townhouses to up to 20 or in particular instances slightly higher numbers of low rise apartments or townhouses. Certainly very successful low rise developments are also occurring with larger numbers and development also continues in high rise buildings. The nature of these larger developments typically differs from those with limited numbers of residences and it is the latter that are the subject of this profile.

La Trobe Financial now has a long and exceedingly sound record as a credit specialist lender into such small to medium size developments, on a consistently selected and conservative basis. This positioning reflects our fundamental view of these developments and resulting stock as excellent short and long term residential assets for the modern Australian society. Of course we are also therefore delighted to lend on the finished residential stock up to 95% of value.

We think these assets provide strong upfront and ongoing opportunities for participation in the property market and benefits thereof, for developers, builders, debt financiers, residents, initial and ongoing equity owners and indeed generally speaking, for the broader local community or village in the respective metropolitan areas. And of course residential construction is a significant component of the national economy.

In context of the present public discussion about the different styles of inner city and metropolitan development, including the push back on some such forms in certain residential suburbs, we therefore think this particular style of development is worth highlighting as one we believe to be a strong asset profile and one that generally performs strongly in balancing all priorities.

This new stock pitches across a spectrum, from quality entry point through to high end sophistication, retaining all (or more of) the luxuries of a high quality house but removing the spaces and functions required for a full family. These developments also benefit from the significant progress over the last 15 years in updated fit outs, lifting the average quality notably and bringing high quality appointments within reach of the norm. The developments achieve economy through common componentry without homogenising scores of apartments.

This stock has met with rising demand from a number of groups. Key examples include young adults setting out in the world with sound incomes and expectations for modern quality living close to the cities, either renting or buying as a quality entry point into the property market. Also downsizing older couples wishing to retain or indeed improve their metropolitan lifestyle close to their families and whose financial capacity has benefited from the positive effect of long term property prices on the exit from their family home.

In addition, strong immigration also supplies willing and financially able tenants and buyers keen to secure high quality Australian living without leaving the inner and middle belt of the metropolitan areas.

As a result, demand for ownership of these properties is also strong from investors, well aware of the quality location and lifestyle profile and of the ongoing rental demand and simplicity of maintaining these properties over an extended period.

These developments limit the impact on surrounding residential areas whilst achieving the significant increases in housing stock required to accommodate the demographic trends now being experienced in our major cities. The developments are also meaningful and positive solutions for inner city commercial areas converting to residential.

Strengths as a Development Asset

As highlighted above, La Trobe Financial takes senior debt positions in the development stage of assets. We view this as an attractive part of our broad residential lending program, reflecting both characteristics of the finished assets and of the development process:

  • High quality and marketable residential assets upon completion supporting take out.
  • Limited development sizes and exposures, with numerous positive consequences for risk.
  • Prudent lending terms.
  • Well understood, straight forward and reliable development pathways, approvals and build requirements.
  • Predictable and relatively short term timeframes.
  • Relatively standardised and comparable deals.
  • Experienced developers with high quality track records and seeking repeat funding, and.
  • Strong ongoing deal flow reflecting long term redevelopment demographics.

Strength as a Credit Specialist

La Trobe Financial has built a leading national reputation over the last decade as a credit specialist of development funding for these projects. We have significant funding capability and national experience.

Steve Lawrence, our Head of Credit Commercial and the primary ‘decision maker’ is regularly on the road nationally meeting with project principals, sponsors and developers and is clear that the reasons repeated developers look to La Trobe Financial for funding their projects are as follows:

  • Brokers deal directly with the people who make the decisions: a credit specialist team of experienced credit analysts in this area.
  • A thorough understanding of these deals means quick decisions on each deal sent to us, whether a yes or a no answer.
  • Significant funding lines means we can be relied upon for consistent approvals.
  • Flexibility means we can work with the borrower to meet their objectives, for example on pre sales levels for loans up to $2m, structure of loans, servicing aspects of loans and funding up to 80% of total development costs, and
  • Quick turnaround time for progress payments ie 24 to 48 hours from receipt of QS or valuation reports.


A lot is written about mega or major trends rolling across society and the link to commercial or investment success.

La Trobe Financial views the transformation process now underway in the growth of small to medium size, low rise residential dwellings, to be a significant long term trend. These assets are lower profile than other development assets – literally high rise and high profile - but we view them as a high quality component of the Australian property landscape for the foreseeable future and we believe they offer participants valuable ongoing outcomes.

Whilst we recognise that any individual asset transformation process introduces an additional risk relative to a stable high quality asset, La Trobe Financial encourages interested parties to assess and come to understand the long term strength of small to medium size, low rise residential development projects as a class of asset.

... That's Lending

Best regards,
Cory Bannister, Vice President, Head of Distribution
La Trobe Financial Asset Management Limited

La Trobe Financial is one of Australia's leading independent credit specialist Fund Managers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 123 staff and has managed over AUD$10Billion covering over 100,000 investment grade assets since inception in 1952.

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