Australian asset management firm IFM Investors points out that the Australian property development financing market is experiencing a trend of rising leverage and a significant decrease in pre-sale requirements. As banks re-enter the commercial property lending market and non-bank lenders gain access to more funds, they are continuously loosening financing conditions to compete for business.
Data shows that banks' pre-sale coverage ratio requirement for property development projects has decreased from 98.5% in the 2022-2023 financial year to 43% in the 2025-2026 financial year, while for non-bank institutions it has decreased from approximately 72% in the 2020-2021 financial year to 23%. At the same time, the loan-to-value (LTV) ratio for banks has risen from less than 56% in 2020 to approximately 66% in 2026, while for non-bank institutions it has risen from approximately 68% to 77%, indicating that lenders are willing to provide higher proportions of financing.
IFM warns that with Australia expected to experience four interest rate hikes by 2026, coupled with continued rising construction costs and a cooling residential market, developers are facing increasing sales and debt repayment pressures. The declining pre-sale rate has resulted in more homes remaining unsold after completion, leading developers to increasingly rely on new loans secured by the remaining inventory to repay existing construction loans. If home sales are slower or prices fall short of expectations, the risks of loan rollovers and refinancing could increase further, with some of these risks potentially spreading to banks and non-bank lending institutions.
