Could NSW’s Pre-Sale Finance Guarantee program evolve into a developer exit facility? Maybe, if the property market remains flat or continues to drift lower.
Its not very often we see a sensible housing solution that targets market inefficiencies. But the NSW government might be onto something solid with its Pre-Sale Finance Guarantee program. We’ve reviewed the program, which launched earlier this ear and we’re bringing it to the attention of our property developer clients.
For qualifying residential projects, the NSW government may commit to purchase:
Up to 50% of the dwellings, capped at $50 million per project.
Up to 75% of the dwellings in projects with fewer than 20 homes, capped at $30 million.
Up to 100% of eligible affordable dwellings delivered or acquired by registered not-for-profit community housing providers, capped at $30 million per project.
The $1bn revolving facility is designed to address one of the biggest painpoints in the brand new proeprty cycle - presale commitments which developers need when seeking out development finance.
There are other requirements - for example approval in place, construction possible within six months, indicative lender approval and at least four homes.
While this is the design, I actually think developers will start to see this even as an exit given that the guarantee will take possession of the properties at a 10% discount to valuation. In a falling or flat market, developers are unlikely to bother reselling to removing the guarantee which is an option under the scheme.
Selling brand new property usually comes with marketing and sales costs which could be equal or similar to the price discount anyways. The maximum government commitment value for each dwelling is generally $2 million. This increases to $2.5 million for homes with three or more bedrooms.
So overall, I think this is a really sensible policy that will start to get more market adoption. The devil is in the detail, the guarantee is subject to an asssessment process — we know some basics about the assessment criteria but will wait to see if this evolves or changes.
We also dont know which developers or builders can access the scheme, although the government does provide a basic breakdown of guarantees granted to date based on suburbs and locations.
A step in the right direction and something we will be introducing into our product suite at 13x.