Australia’s corporate regulator, ASIC, has warned private credit funds that its patience on property valuations has expired. Commissioner Simone Constant stated enforcement action is imminent following unheeded calls for re-evaluation amidst a stressed property sector. This comes as Gavin Melvin of the Urban Development Institute of Australia’s NSW unit revealed a profound market disconnect: in some urban areas, “negative land value” is insufficient to make construction projects feasible, highlighting the severe gap between building costs and market realities.
The financial viability of property development faces acute pressure. A July report estimated building a Sydney apartment now exceeds $1 million, up from $917,000 in 2023. This contrasts sharply with buyer affordability; the median Sydney income can service a mortgage for only half that amount. Major developers forecast a new home supply crunch within six months as projects become unviable, exacerbated by anticipated RBA cash rate increases. Affordable housing developer Bathla, for example, holds approximately $1.3 billion in debt tied to undeveloped land.
These market dynamics pose significant risks for private credit funds, particularly those heavily exposed to undeveloped land or reliant on slowing apartment sales. Arbitrium Capital Partners’ Daniel Liptak noted the perceived safety of such investments, driven by housing shortages and development pushes, ironically made them dangerous. ASIC Commissioner Constant highlighted “canyon-wide variations” in critical definitions among lenders, extending to default notification and, crucially, loan-to-value (LVR) ratios. While some funds use current land worth, others base LVRs on “as complete” valuations for multi-year projects, raising serious questions about their reliability in a volatile market. The era of rising property values masking errors is over, presenting immense difficulty for lenders seeking to recover funds.
