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Australian CRE lender Pallas Capital has reported a positive start to 2025, recording $602 million in loan settlements for the first quarter, despite ongoing market sluggishness and a subdued investment climate.
According to Alexis Holloway, chief investment officer at Pallas Capital, there is pent-up demand in the residential market but buyers remain hesitant due to high interest rates.
“Our read is that there is a level of pent-up demand in the Australian residential market, but buyers are waiting for that interest rate relief before they move forward,” Holloway said.
The company expects a gradual improvement in sales activity as the major banks predict multiple interest rate cuts over the course of 2025. This may trigger a resurgence in shelved development projects and stimulate site acquisitions.
“Whilst we’re not in the business of predicting markets, at this point a recovery in the residential market seems to be slow and steady; the two factors that could accelerate a recovery are interest rate reductions and access to credit,” Holloway said.
Pallas Capital has seen strong demand for investment and pre-development loans, driven in part by conservative lending conditions from traditional banks.
“Our moderate gearing levels (average 66 per cent on investment loans) remains attractive to borrowers,” Holloway said, noting that residual stock loans made up approximately 20 per cent of settlements for the quarter.
Despite a strong appetite for construction lending, Pallas is approaching this segment cautiously, with Holloway noting that “lending terms appear to be aggressive, so our deployment remains at moderate levels”.
On loan originations, Pallas settled 43 first mortgage loans and 13 second mortgage loans during the quarter. While slightly below the previous record-setting quarters, the results were considered strong given seasonal and market headwinds.
The company remains confident in achieving loan settlements exceeding $2.75 billion for the financial year.
Expansion into the New Zealand market continues to gain traction, with $105 million in settlements recorded for the quarter. The firm’s new Christchurch office has opened and a suite of construction lending products is set to launch in Q2 2025.
“Pallas is well positioned to be a market leader in the NZ non-bank sector,” Holloway said.
Loan repayments also remained strong, with over $229 million repaid in the quarter. This brings the company’s total loan repayments to $4.6 billion since inception – achieved without any loss of capital or interest.
[RELATED: Pallas Capital announces cut in commercial rates]
