Debt Factoring Props Up Australlian Property Prices

Australian home price weakness started to grip the country in 2011

. Research says that the value of Australian homes dropped in the March quarter by a seasonally adjusted 2.1 percent, showing that this follows other negative property performance data such as the auction clearance rates which have been down by over 20 percent.

The "premium" sector of the market has fallen off, however Sydney, Australia, the most expensive market, appears to be relatively resilient. RP Data-Rismark data states that the top 20 percent of suburbs (in terms of house price values) in Sydney recorded a 0.8 percent growth in the March quarter.

The housing market in Australia has slowed down quitea lot this year, and this has been driven primarily by the impact of concerns about the direction of the economy, a tighter lending market, overall housing affordability issues, and higher interest rates. It was not surprising that The Reserve Bank left rates on hold for the time being despite some evidence of inflationary pressures.

Small business owners are the ones who purchase most homes, therefore it stands to reason that decreased lending to small businesses translates to the fact that the small business owners (and their employees) have less money to spend on homes. Slower economic growth by the sector that currently provides private sector jobs for nearly 4.8 million people in Australia. Therefore, a tightening in lending to the small business sector by the banks will have a natural 'flow-on' impact to property prices.

The providers of debtor finance, are filling the void in small business credit, otherwise known as invoice discounting, a financial service whereby a small business can use his or her invoices for goods and services provided to credit worthy business customers as the collateral for a line of credit. The average that an invoice is paid in Australia is actually over 50 days, and therefore a small businesses can use invoice discounting to tap into the cash flow locked up in these accounts receivable assets, invoices are only paid in 30-60 days In Australia,

Invoice discounting works where the small business sells its invoices to a finance company that will advance a percentage of the invoice face value upfront. Then, the finance company waits for the invoice(s) to be paid and then takes a fee based on the number of days that the invoice was outstanding. This fee then effectively becomes a "discount" from the invoice value and hence the phrase "invoices discounting."

A small business in today's credit constrained economy is increasingly turning to alternative sources like debt factoring to find the working capital required to continue growing. Not only does this benefit the business, but it also helps bolster the property market as the increased growth and profits in the SME sector finds its way into the purchase of homes for Australian families.

For more information about invoice discounting call The Interface Financial Group (IFG) at 1300 957 900.

by: Kristin Gabriel

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