Small enterprises are increasingly likely to be sold or folded with the owners’ offspring showing less interest in taking over the reins. It’s a dire situation compounded by many failing to have a retirement strategy.
Many investors chaff at the notion of sitting on “idle dough”; there’s a strong temptation to “do something”. But being liquid – and patient – proffers the opportunity to make the right investment decision at the right time.
Private credit has a critical role in tackling housing shortage
The numbers say it all. In July 2024, the Federal Government set a target to build 1.2 million new homes by 2029. Over the same period, the population is expected to grow by nearly two million, adding further pressure to an already strained housing market. With close to 123,000 people already experiencing homelessness in Australia, the risk of worsening housing shortages is clear.
Compounding the issue is that the 1.2 million housing target is just that – a target, not a guarantee. To put it in perspective, in the five years to September 30, 2024, only 892,382 dwellings were completed – falling short by 307,618 homes, or an average shortfall of 61,523 a year.
For Clinton Arentz, executive director, property and lending, at Trilogy Funds, the shortfall does not surprise. “The 1.2 million homes to be built over the next five years, that’s lovely, but we’re not likely to reach this target. It requires land to be freed up, in some cases, rezoned, and then services provided for the land.
“I think we’ve badly underestimated population growth and what this means for the supply of housing,” he tells The Golden Times.
“If we had planned properly, more land would now be available for development. We would have improved infrastructure and public transport and have better access to power and water. All these factors have coalesced to slow the delivery of stock.”
Arentz says it is little wonder vacancy rates are incredibly low, and there’s upward pressure on rents causing genuine financial pain. The September 2024 Suburb Rental Trends Pain Index shows 65 per cent of renters are in “extreme pain”, a number that reflects, in part, a residential vacancy rate of just one per cent.
It’s not just on the rental side. Roy Morgan figures for November 2024 have 27 per cent of mortgage holders now at risk of mortgage stress. “Quite simply, we have an affordability crisis compounded by a supply crisis, and I don’t see this situation changing in the foreseeable future,” he says.
Arentz contends that the three tiers of government have compounded the housing crisis. “The Federal Government can give some strategic direction but isn’t hands-on. Different state governments have their own policies, while most planning approvals are at the local authority level where there’s myriad attitudes to development.
“Most developers, large or small, complain that the approval times are very slow. There’s been tremendous sluggishness at all layers of government to accept that they should get ahead of that game and have land ready. Sadly, it becomes a political football, with each tier of government scoring points off the other, making it extremely difficult for developers to plan long term.”
That said, Arentz forecasts a healthy pipeline of development activity over the next five to 10 years to try and bridge that supply gap, adding that supply is the key issue, having never really recovered since COVID.
He is seeing opportunities in the middle-ring suburbs of the major capital cities that favour medium-density developments (townhouses, low-rise apartments) and build-to-rent projects, citing examples such as Sydney’s Parramatta and Penrith, Melbourne’s Box Hill and Preston and Brisbane’s Chermside and Carindale.
He is also optimistic about regional cities where there is growing demand for greenfield developments, house-and-land packages and master-planned communities. “The pandemic accelerated the trend of people moving to regional areas, and many will not return to the cities due to the ability to work remotely and lifestyle choices. Cities such as Ballarat, Bendigo, Wollongong, Newcastle, the Gold Coast and Toowoomba will all benefit from this trend.”
All these projects will require capital and Arentz is confident that private credit will increasingly play a major financing role.
“The banks are often misaligned with the projects that suit Trilogy Funds. Where they have regulatory restraints and capital adequacy requirements, are risk averse and slow to make a decision, we are flexible and have the risk appetite that is grounded in our specialised expertise.
“For investors to enter this market via a credit fund specialising in property development, it’s the best of both worlds. They get to invest in bricks and mortar – the great Australian investment love affair – and enjoy a higher yield compared with direct housing investment.
“The Trilogy Monthly Income Trust – Trilogy’s credit fund with an 18-year track record of funding thousands of developments – delivered an annualised return of 7.5 per cent at April 30, 2025. By comparison, a direct property investor would likely achieve a gross yield of around 3.6 per cent a year on a $1 million property earning $700 a week in rent.
“In addition, the trust is exposed to a diversified range of projects, typically in the residential sector, and is diversified geographically and by asset type.”
