Deposit, Coposit or no-posit? The question posited by today's lenders in Australia's housing market

Ensuring housing supply and affordability is a key focus of Australian Federal, State and Territory governments as well as the private sector, evidenced by the National Housing Accord's target to build 1.2 million new homes by 2029. Despite this focus on housing, the National Housing Supply and Affordability Council – tasked with advising on the suitability of the Accord's target – recently projected that the target will be missed, with the number of new homes during that period coming in at under 1 million.

After years of rising interest rates, construction costs and builder insolvencies dampening lenders' appetite in the property finance market, a recent survey conducted by Stamford Capital of 100 bank, non-bank and private lender players found that in 2024 lenders are looking to reengage in the sector, indicating a trend towards investment in housing in line with the community's priorities.

The Stamford Capital Survey notes that with this reengagement comes a shift in lenders' priorities. Not surprisingly, survey respondents reported they are turning their focus towards builder financial capacity. Perhaps more surprisingly was an indication of a reduction, and in some cases total removal, of presale contract threshold requirements. Stamford Capital concludes that if lenders want to increase their property finance market share in 2024, they need to reconsider the traditional stance on presale contracts and the certainty of cash deposits that come with them.

At Clayton Utz we are seeing this play out through the rise of innovative deposit solutions to encourage participation by both ends of the property market spectrum, two such examples being Coposit and Deposit Power:

• Coposit is making waves in the off-the-plan, land subdivision and house and land package market by reducing a purchaser's upfront deposit payment to $10,000, with the remainder of the deposit to be paid in instalments during the construction phase. This option is attractive to both first home buyers who have not yet saved a full 10% deposit, as well as established participants who may prefer to manage their cashflow via the instalment scheme.
• Deposit Power takes a different approach, by issuing a bond on behalf of purchasers in place of a cash deposit, providing purchasers with time to build up their own cash savings or the ability to utilise equity in existing property.

These offerings are attractive to developers and purchasers alike — they assist developers to meet the traditional lender-imposed presale contract hurdle by widening prospective purchasers beyond those with a cash deposit ready to go. From a lender perspective, it is important that these options are assessed in the context of each development and that the Finance Documents are tailored appropriately.

The shift towards adopting these options has already begun, with Commonwealth Bank of Australia announcing it will accept presale contracts (up to 10%) with deposits using the Coposit scheme, and reportedly 65 off-the-plan projects have already signed up to the Coposit platform.

Property finance lenders should be aware of these new arrangements and reach out to their advisers to understand how they may impact and potentially enhance a lender's offering.