CONSTRUCTION projects in Australia will continue to face a credit crunch for at least another 18 months, risking a double dip in construction activity after the federal government's stimulus package runs out, according to consultants Davis Langdon.
A Davis Langdon survey of key financial decision makers found that opinions were mixed on when credit restrictions would ease, but developers and financiers were certain there would be no change this year.
''Nearly 60 per cent of financiers expect the situation to turnaround in 12 to 18 months while most developers have a more pessimistic outlook and are expecting to wait 18 to 24 months,'' said Davis Langdon research manager Michael Skelton. ''We found that access to finance in the property and construction industry is a key concern."
Mr Skelton said developers viewed the loan to equity ratios as very conservative and unworkable, particularly when combined with shrinking valuations and a lack of second-tier finance. The finance sector thought a turnabout would occur only when global markets become ''less skittish'', he said.
Issues highlighted by the research included:
■ Lending for construction projects is restricted, with limited lending targeted at cash-flow assets, not construction.
■ Recovery in lending liquidity is not expected for at least 18 months.
■ Developers are losing interest in local banks and looking more at private syndicates for funding.
■ Risk assessment criteria are much more stringent.
■ The finance sector remains very worried about the lack of competition in the marketplace.
Mr Skelton said that, excluding government stimulus projects, the Bureau of Statistics' Work Done and Work Commenced figures in the non-residential sectors were down 34 per cent and 52 per cent respectively from the highs of 2008.
"You have to ask that, without improved access to finance, are we at risk of a double dip in construction work after stimulus work ceases?" he said.
Mr Skelton said 74 per cent of developers had sought finance for projects in the past six months or were seeking it. Seventy-six per cent were seeking finance for projects worth less than $200 million.
Barriers to financing projects identified by developers and financiers included the loan-to-equity ratio, the risk profile of the project, the level of pre-sales and the risk profile of the sector.
Financiers conceded the industry was suffering from a lack of second and third-tier lenders for moderate to higher risk transactions or mezzanine finance. "Several mentioned lender capacity and the cost of raising capital, particularly when global markets are still nervous," he said. "A move by banks to limit their exposure to the property and construction sector was identified as another obstacle faced by the industry.''
Mr Skelton said the increased risk of construction and development loans - more prone to fail in a downturn than secured loans due to the potential for construction lags - meant they were less likely to obtain funding than existing cash-flow property assets.
Developers indicated they would consider moving away from domestic bank funding.
