HCP has had another solid year with 21 deals totalling some $58m invested on behalf of our investors as at 30 September and indications are we will have a good run to the end of year with a solid pipeline of transactions.

As we close in on the end of the third quarter of 2021, its worthwhile looking back on the year to date and how the markets have changed since we last assessed them.

When we kicked off 2021 the uncertainty of COVID lockdowns was an ever-present concern however the eastern state markets in particular proved to be resilient with enquiries for residual stock loans, site acquisition and construction opportunities across all three states. As the previous round of construction deal finishes began to tail off, we saw a considerable level of competition for residual stock loans with pricing plunging as a considerable level of funds flooded the market looking for a home.

As the volume of these deals waned, the funding competition heated up across the remaining sectors however we remain comfortable with both the quality of deals secured and the pricing as we continue to maintain a cautiously selective approach to all new transactions rather than joining the race to the bottom price wise.

We have managed to do this despite competition from massive levels of investment funds looking for a home. The ATO recently released figures that indicated that SMSF’s with $5 million or more of assets accounted for were up by a third since 2016 with roughly 20,000 Funds sitting on savings of at least $5 million in June 2020and with significant asset price inflation in the past 12 months, that figure is likely to have ballooned further. With almost 600,000 SMSFs in Australia, managing a total of $822 billion on behalf of 1.1 million members it’s no wonder competition is fierce and some are willing to compromise their risk profile simply to chase a return.

Market observations

A number of observations are worthwhile passing on. Firstly, the lockdowns in Victoria and NSW have finally begun to have an impact with slowing new development applications in both states and a heightened interest from southern developers in SEQ opportunities. While in the last week or so we have seen a slight up tick in applications in the southern states, they are still significantly down from the highs of six months ago and we expect them to remain subdued for some time to come.

Getting the right advice

Its not just about getting the right legal advice either. Something we are constantly presented with is transactions lacking the right level of research or due diligence across many disciplines. While it’s difficult, and let’s face it, often damned expensive, for emerging businesses to retain the best in terms of external consultants to test every element of risk associated with a new project. There are some key steps that can be addressed by a simple investment in time and modest costs.

We’ll be back before the end of the year with our usual Wrap up and projections for the coming year and as always, we appreciate the loyalty and support of our investors as we try to stay ahead of the market and bring you well-conceived opportunities with appropriately priced risk returns.

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