Healthcare and life sciences is emerging as an economically resilient alternative asset class, given that the industry has huge tailwinds in the form of the demographic force of an ageing population around the world. Plus, there is the growing demand from lifestyle diseases – illnesses that arise from day-to-day life habits of an individual – and the expansion on the back of digital health and AI.
The debate between fundamental investing and systematic investing is right up there with the Beatles versus the Rolling Stones, or that between fans of pineapple on pizza and those who ban such a thing. As with those debates, both have a place, and it’s not absolute.
You wouldn’t credit what could help solve the housing supply crisis
There have now been decades of a structural under-supply of housing, and although the federal government’s National Housing Accord in 2023 committed “states and territories, local government, institutional investors and the construction sector” to “an initial aspirational target” to build one million new well-located homes over five years from mid-2024, that’s not going to happen.
The Housing Industry Association (HIA) reports that construction began on just 43,250 new homes in the first quarter of the 2024/25 financial year. In January, the HIA stated that, based on the current trajectory, only 173,000 homes will commence during the first year of the National Housing Accord period (to June 2025), falling 67,000 short of the annual target. Meanwhile, Australian apartment construction is half the volume it was in 2017/2018.
There are a wide variety of reasons that the pet-shop galahs are citing, such as council and planning-department red tape, shortages of skilled workers (and falling productivity from those that can be found), bottlenecks in the supply chains for building materials, and difficulty in getting home loans.
But there’s another shortage that no-one is talking about – access to flexible credit.
There is no question that housing supply is a challenge, but the real constraint is developers’ and builders’ ability to secure funding.
The suppliers of housing, as in the developers and builders who can stand-up whole streets and estates, need not just access to credit, but tailored and flexible credit that suits their business requirements. This is critical, and to us, it’s far better understood by private credit lenders than by the banks.
A review we conducted over the past couple of years found that in the unfortunate cases where builders had collapsed, cashflow and working-capital cycle issues were more prevalent than triggers such as increases in building costs and materials. In other words, profitability wasn’t the issue, but the need to manage working capital requirements throughout the development cycle. When using a lender that forces amortisation from day one, a developer’s cash resources are diverted from its core purpose: building and supplying homes for Australians.
We’ve seen examples where mainstream lenders require repayment throughout the development cycle and insist on 100% of the homes being pre-sold before finance is granted and development can begin. Alongside other unworkable conditions, this demonstrates that part of the finance system is working against Australia’s urgent housing needs. What’s required are loan conditions that support the way a borrowers’ business operates, and many more homes to get off the ground.
The result is a harsh outcome for the people who’ve lost money in these collapses through no fault of their own.
Conversely, private credit providers are far more willing to tailor the loan to the needs and cash flow cycles of the business. The private lenders that we’ve assessed are not forcing amortisation, their borrowers can structure the loan around the project, in terms of how the interest works for the borrowers when they want to pay it, and so forth, whether they want to capitalise the interest, whether they want to pre-pay it, or pay interest-only.
They can get access to the equity that they’ve developed as those sales are being made, straight away, so that they can parlay it into their next project. That’s the kind of flexibility that you’re getting these days out of private market funders, that you simply can’t get from mainstream lenders. In the private lending market, it’s a borrower’s market in terms of flexibility. It’s an absolute boon for these developers, because without private credit, many of them would be shut out of funding channels. So, everyone’s better off.
As a long-term banker, I understand exactly why this is the case. Our objective observation as investors into this industry – and especially mine, after 25 years in banking – is that we’re seeing some of the best and most experienced credit people leave banks and move into private credit providers. Why are they doing that? It’s because they don’t like the cookie-cutter approach. They know how to structure win-win lending arrangements that suit the cash flow needs of the borrower, and they’re good at it. They can give developer borrowers the terms and flexibility that they need to deliver their projects with the right level of profitability, with the right cash flow sequence, and with the right outcome.
The real issue here is the supply of credit, and the supply of the right sort of credit. Take the materials and labour bottlenecks. With the right funding, developers gain certainty, allowing them to forward-order materials and recruit contractors. If you follow the chain back, as we have, and continue to do through our discussions with industry players, the common denominator remains clear: the supply issue is a supply-of-credit.
We estimate that from full due diligence to loan drawdown, in the mainstream banks, is a four-month process, at least. But in the private lending market, that is about four weeks.
That’s not just approval, it is the entire process, from first meeting to drawing down the funds so that you turn the shovel, and start your development. That can happen because the best people are working on the loan, and they can structure them to suit everyone. If the government wants to boost housing supply, there’s one lever it can pull – make it easier for the right private lenders to do what they do best.
Craig Brooke is chief executive officer of Adelaide-based KeyInvest Limited.
