Presales requirements were observations, not mandates
The Australian Prudential Regulation Authority (APRA) has clarified that its 2017 observations on commercial property lending were not intended to set minimum presales requirements for authorised deposit-taking institutions (ADIs).
APRA’s statement follows concerns within the industry about how its past guidance on residential development lending was being interpreted. The regulator originally issued a letter in March 2017, outlining findings from a thematic review conducted in 2016, which examined market conditions and underwriting standards.
At the time, APRA noted that some ADIs had tightened their presales requirements due to settlement risk concerns. “ADIs are now generally requiring qualifying presales equivalent to at least 100% of committed debt,” the 2017 letter stated.
However, the regulator has now clarified that this was an observation of industry practice rather than a mandated benchmark. Therese McCarthy Hockey (pictured), APRA board member, emphasised that the regulator’s intent was to provide insights rather than impose new lending requirements.
“The reference to presales coverage in APRA’s March 2017 letter does not represent a minimum requirement or expectation of APRA,” she said. “It was a reflection of industry practice observed at the time through the thematic review.”
APRA reiterated that its expectations for prudent credit risk management in commercial property lending are outlined in Prudential Standard APS 220 and Prudential Practice Guide APG 220. These guidelines require ADIs to maintain sound credit assessment policies, which APRA continues to monitor through its supervisory activities.
While presales remain an important factor in risk management, APRA confirmed that it has not set specific requirements for them. The latest clarification, the regulator said, aims to ensure a consistent understanding of its stance across the market.
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