'Building Industry'

http://www.abc.net.au/news/stories/2008/07/08/2297371.htm

By business editor Peter Ryan

Posted Tue Jul 8, 2008 10:23am AEST

The MBA says builders have less room to move thanks to the credit crisis.

Most residential builders are small business operators who live or die on their relationship with a bank.

Many have survived on high interest, low documentation loans, which are now at risky end of banking.

But as the credit crisis morphs into credit rationing, builders - especially small operators - are learning where they stand in a much tighter credit landscape.

Brian Welch, who heads up the Master Builders Association of Victoria, told AM that two years ago credit was freely available but now builders are being told “sorry, we can’t help you”.

He says a third of builders recently surveyed had seen their access to credit deteriorate.

“The way they would use that money would be anything from purchasing the sites which they would build on and develop [to] the cash needed for their business, whether it is for buying materials or simply wages for their employees and subcontractors,” he said.

There has been a lot of talk from some of the big banking chiefs, particularly from the Commonwealth Bank and the National Australia Bank about credit rationing. But are we already seeing that?

“We’ve been seeing credit rationing going on in the building industry for some time. Prior to the turn of the year, we were seeing builder’s credit opportunities slipping,” Mr Welch said.

Until recently, many builders dealt with mortgage brokers who carved out the best deal with banks.

But tighter lending controls have slashed broker commissions and broking houses are thin on the ground.

So, without a negotiator, often unsophisticated small businesses now deal directly with big banks.

Harry Pontikis of the broker Chocolate Money is at the forefront of the credit squeeze.

He says banks are now taking a much greater interest in the building projects they’re being asked to fund.

“This new landscape has allowed lenders and banks specifically to become very negative in everything they look at,” he said.

“Which means that usually they’re lending significantly lower amounts than they would have six months ago and charging a lot more for them, which has the net effect of causing the builders to build less, for example, townhouses or houses.”

Mr Welch says credit rationing is jeopardising construction at a time when the rental shortage is quickly becoming a crisis.