The plan has been criticised as being a “bail out” fund, which would protect some corporations which adopted poor lending practices over previous years, and are now vulnerable to debt because the value of assets in their portfolio has decreased. Banks are also asking a higher percentage of apartments are sold, within a new apartment project, which made finance difficult especially last year, when interest rates were higher.
DTZ Research argues in a new research paper “falling (property) values were a natural market mechanism for dealing with an oversupplied market and declining demand”.
“Intervention by providing a funding solution, and not addressing the core problem, can only lead to further issues,” DTZ said in its report.
THe DTZ paper also argued that as demand is the driver of all property projects, “the government’s ability to improve market fundamentals is limited.”
“This brings into question the sustainability of the initiative and the economic benefit in supporting projects that, by natural market forces, have stalled,” DTZ said.
The $30 billion federal government proposal assumes foreign banks will withdraw from the Australian market, leaving significant holes in project funding, according to DTZ. “To date there has been no sign of this,” it said.
Commercial property markets – offices, retail, industrial – have been affected by a fall in demand, as a result of the global financial crisis.