With credit curbs hitting developers’ bottom line and public confidence in banks at an all-time low, the development finance landscape is changing.
Non-bank lenders have stepped in to provide funding lifelines to investors and developers as warnings sound about settlement risk.
Director of boutique funds manager group Assured Management Limited, Nick Davoren, explores the non-bank lending landscape.
“Non-bank finance continues to move into mainstream acceptance,” Davoren says.
“With tightening loan-to-valuation ratio prerequisites, rising equity requirements and increasing pre-sale hurdles to above debt coverage levels, the big four are losing their appetite for development.”
Experienced property developers are learning that non-traditional financing is opening doors and turning keys for projects that were feasibly impossible with banks.
While these loans are often offered at higher interest rates, they can come with no presale requirements, expedient approval processes and merit-based analysis of projects.
“This means developers can commence and complete more projects at a rapid rate, resulting in reduced holding costs that are commonly associated with bank finance.”
Siera Group managing director Brent Thomson has built a highly-respected development business funded entirely by non-bank finance.
“The strong appetite for our style of projects, coupled with the speed and efficiency of loan applications, has meant that we are able to commence projects without delay.
“This has been vital in ensuring the success of projects and constant workflow for our team.”
Sticking to a formula driven by a passion for excellence and quality, Siera Group has been delivering high-end results with a number of boutique properties across the inner south of Brisbane.
“Since 2015 all of the projects we have funded with Assured Management have been inner to middle ring developments in Brisbane aimed at the owner-occupier market,” Thomson said.
“On all occasions we delivered high-quality, well priced products that covered debt with sales by the completion of the project.”
With booming interstate migration and its housing prices holding strong despite significant slumps in Sydney and Melbourne, Queensland is not experiencing the same acceleration of decline in the housing market.
In addition to an increasing trend towards downsizing, first home owner demand is high on the back of incentives with a clear shift to a more dominant owner-occupier market.
This is backed by a slowdown in credit growth which has been led by a sharp reduction in investment lending: down 23.4 per cent over the past year, and 36.7 per cent lower relative to the 2015 peak.
The strong owner-occupier market has meant that even through turbulent times in the property market, there has still been opportunity for targeted development, and projects with superior quality fit out and finishes.
“We have been seeing valuers scrutinise construction contracts more so now than ever and have certainly been tailoring our appetite to reflect this,” Davoren says.
“As a boutique lender this is something that we are happy to bring to the attention of our borrowers; working with them to deliver projects that are going to have successful and attractive offerings to the market”.
Non-bank lenders have been operating successfully here in Australia for many years and are happy to work on a more personalised level with developers to see the completion of projects. Assured Management Limited has been operating since the inception of the Managed Investments Act 1998.
“Assured Management Limited approaches the lending process with flexibility and our ability to work directly on a personalised level with developers is what sets us apart from competitors and major banks.
“Unlike traditional financial institutions we have a dynamic and commercial mindset with the capacity to problem solve and work closely with our developers to reach the shared objective; to finish projects in a timely and cost-effective manner”.
Backed by directors with 60 years’ combined industry experience and an Australian Financial Services Licence (AFSL), Assured Management Limited is looking for projects in South East Queensland and Northern New South Wales: funding land subdivisions, housing estates, townhouse developments and unit blocks.
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